NY-UCC Uniform Commercial Code NY

Section 1--101. Short Titles.

(a) This act may be cited as the Uniform Commercial Code.

(b) This article may be cited as Uniform Commercial Code -- General

Provisions.

Section 1--102. Scope of Article.

This article applies to a transaction to the extent that it is

governed by another article of this act.

Section 1--103. Construction of Uniform Commercial Code to Promote its

Purposes and Policies; Applicability of Supplemental

Principles of Law.

(a) This act must be liberally construed and applied to promote its

underlying purposes and policies, which are:

(1) to simplify, clarify, and modernize the law governing commercial

transactions;

(2) to permit the continued expansion of commercial practices through

custom, usage, and agreement of the parties; and

(3) to make uniform the law among the various jurisdictions.

(b) Unless displaced by the particular provisions of this act, the

principles of law and equity, including the law merchant and the law

relative to capacity to contract, principal and agent, estoppel, fraud,

misrepresentation, duress, coercion, mistake, bankruptcy, and other

validating or invalidating cause supplement its provisions.

Section 1--104. Construction Against Implied Repeal.

This act being a general act intended as a unified coverage of its

subject matter, no part of it shall be deemed to be impliedly repealed

by subsequent legislation if such construction can reasonably be

avoided.

Section 1--105. Severability.

If any provision or clause of this act or its application to any

person or circumstance is held invalid, the invalidity does not affect

other provisions or applications of this act which can be given effect

without the invalid provision or application, and to this end the

provisions of this act are severable.

Section 1--106. Use of Singular and Plural; Gender.

In this act, unless the statutory context otherwise requires:

(1) words in the singular number include the plural, and those in the

plural include the singular; and

(2) words of any gender also refer to any other gender.

Section 1--107. Section Captions.

Section captions are part of this act. The subsection headings in

article nine are not part of this act for purposes of construction.

Section 1--108. Relation to Electronic Signatures in Global and National

Commerce Act.

This article modifies, limits, and supersedes the federal Electronic

Signatures in Global and National Commerce Act, 15 U.S.C. Section 7001

et seq., except that nothing in this article modifies, limits, or

supersedes Section 7001(c) of that act or authorizes electronic delivery

of any of the notices described in Section 7003(b) of that act.

Section 1--201. General Definitions.

(a) Unless the context otherwise requires, words or phrases defined in

this section, or in the additional definitions contained in other

articles of this act that apply to particular articles or parts thereof,

have the meanings stated.

(b) Subject to definitions contained in other articles of this Act

that apply to particular articles or parts thereof:

(1) "Action", in the sense of a judicial proceeding, includes

recoupment, counterclaim, set-off, suit in equity, and any other

proceeding in which rights are determined.

(2) "Aggrieved party" means a party entitled to pursue a remedy.

(3) "Agreement", as distinguished from "contract", means the bargain

of the parties in fact, as found in their language or inferred from

other circumstances, including course of performance, course of dealing,

or usage of trade as provided in Section 1--303.

(4) "Bank" means a person engaged in the business of banking and

includes a savings bank, savings and loan association, credit union, and

trust company.

(5) "Bearer" means a person in control of a negotiable electronic

document of title or a person in possession of a negotiable instrument,

negotiable tangible document of title, or certificated security that is

payable to bearer or indorsed in blank.

(6) "Bill of lading" means a document of title evidencing the receipt

of goods for shipment issued by a person engaged in the business of

directly or indirectly transporting or forwarding goods. The term does

not include a warehouse receipt.

(7) "Branch" includes a separately incorporated foreign branch of a

bank.

(8) "Burden of establishing" a fact means the burden of persuading the

trier of fact that the existence of the fact is more probable than its

nonexistence.

(9) "Buyer in ordinary course of business" means a person that buys

goods in good faith, without knowledge that the sale violates the rights

of another person in the goods, and in the ordinary course from a

person, other than a pawnbroker, in the business of selling goods of

that kind. A person buys goods in the ordinary course if the sale to the

person comports with the usual or customary practices in the kind of

business in which the seller is engaged or with the seller's own usual

or customary practices. A person that sells oil, gas, or other minerals

at the wellhead or minehead is a person in the business of selling goods

of that kind. A buyer in ordinary course of business may buy for cash,

by exchange of other property, or on secured or unsecured credit, and

may acquire goods or documents of title under a preexisting contract for

sale. Only a buyer that takes possession of the goods or has a right to

recover the goods from the seller under article 2 may be a buyer in

ordinary course of business. "Buyer in ordinary course of business" does

not include a person that acquires goods in a transfer in bulk or as

security for or in total or partial satisfaction of a money debt.

(10) "Conspicuous", with reference to a term, means so written,

displayed, or presented that, based on the totality of the

circumstances, a reasonable person against which it is to operate ought

to have noticed it. Whether a term is "conspicuous" or not is a decision

for the court.

(11) "Consumer" means an individual who enters into a transaction

primarily for personal, family, or household purposes.

(12) "Contract", as distinguished from "agreement", means the total

legal obligation that results from the parties' agreement as determined

by this act as supplemented by any other applicable laws.

(13) "Creditor" includes a general creditor, a secured creditor, a

lien creditor, and any representative of creditors, including an

assignee for the benefit of creditors, a trustee in bankruptcy, a

receiver in equity, and an executor or administrator of an insolvent

debtor's or assignor's estate.

(14) "Defendant" includes a person in the position of defendant in a

counterclaim, cross-claim, or third-party claim.

(15) "Delivery", with respect to an electronic document of title means

voluntary transfer of control and with respect to an instrument, a

tangible document of title, or an authoritative tangible copy of a

record evidencing chattel paper, means voluntary transfer of possession.

(16) "Document of title" means a record (A) that in the regular course

of business or financing is treated as adequately evidencing that the

person in possession or control of the record is entitled to receive,

control, hold, and dispose of the record and the goods the record covers

and (B) that purports to be issued by or addressed to a bailee and to

cover goods in the bailee's possession which are either identified or

are fungible portions of an identified mass. The term includes a bill of

lading, transport document, dock warrant, dock receipt, warehouse

receipt, and order for delivery of goods. An electronic document of

title means a document of title evidenced by a record consisting of

information stored in an electronic medium. A tangible document of title

means a document of title evidenced by a record consisting of

information that is inscribed on a tangible medium.

(16-a) "Electronic" means relating to technology having electrical,

digital, magnetic, wireless, optical, electromagnetic, or similar

capabilities.

(17) "Fault" means a default, breach, or wrongful act or omission.

(18) "Fungible goods" means:

(A) goods of which any unit, by nature or usage of trade, is the

equivalent of any other like unit; or

(B) goods that by agreement are treated as equivalent.

(19) "Genuine" means free of forgery or counterfeiting.

(20) "Good faith" means honesty in fact in the transaction or conduct

concerned.

(21) "Holder" means:

(A) the person in possession of a negotiable instrument that is

payable either to bearer or to an identified person that is the person

in possession; or

(B) the person in possession of a negotiable tangible document of

title if the goods are deliverable either to bearer or to the order of

the person in possession; or

(C) the person in control, other than pursuant to Section 7--106(g),

of a negotiable electronic document of title.

(22) "Insolvency proceeding" includes an assignment for the benefit of

creditors or other proceeding intended to liquidate or rehabilitate the

estate of the person involved.

(23) "Insolvent" means:

(A) having generally ceased to pay debts in the ordinary course of

business other than as a result of bona fide dispute;

(B) being unable to pay debts as they become due; or

(C) being insolvent within the meaning of federal bankruptcy law.

(24) "Money" means a medium of exchange that is currently authorized

or adopted by a domestic or foreign government. The term includes a

monetary unit of account established by an intergovernmental

organization or by agreement between two or more countries. The term

does not include an electronic record that is a medium of exchange

recorded and transferable in a system that existed and operated for the

medium of exchange before the medium of exchange was authorized or

adopted by the government.

(25) "Organization" means a person other than an individual.

(26) "Party", as distinguished from "third party", means a person that

has engaged in a transaction or made an agreement subject to this act.

(27) "Person" means an individual, corporation, business trust,

estate, trust, partnership, limited liability company, association,

joint venture, government, governmental subdivision, agency, or any

other legal or commercial entity. The term includes a protected series,

however denominated, of an entity if the protected series is established

under law other than this act that limits, or limits if conditions

specified under the law are satisfied, the ability of a creditor of the

entity or of any other protected series of the entity to satisfy a claim

from assets of the protected series.

(28) "Present value" means the amount as of a date certain of one or

more sums payable in the future, discounted to the date certain by use

of either an interest rate specified by the parties if that rate is not

manifestly unreasonable at the time the transaction is entered into or,

if an interest rate is not so specified, a commercially reasonable rate

that takes into account the facts and circumstances at the time the

transaction is entered into.

(29) "Purchase" means taking by sale, lease, discount, negotiation,

mortgage, pledge, lien, security interest, issue or reissue, gift, or

any other voluntary transaction creating an interest in property.

(30) "Purchaser" means a person that takes by purchase.

(31) "Record" means information that is inscribed on a tangible medium

or that is stored in an electronic or other medium and is retrievable in

perceivable form.

(32) "Remedy" means any remedial right to which an aggrieved party is

entitled with or without resort to a tribunal.

(33) "Representative" means a person empowered to act for another,

including an agent, an officer of a corporation or association, and a

trustee, executor, or administrator of an estate.

(34) "Right" includes remedy.

(35) "Security interest" means an interest in personal property or

fixtures which secures payment or performance of an obligation.

"Security interest" includes any interest of a consignor and a buyer of

accounts, chattel paper, a payment intangible, or a promissory note in a

transaction that is subject to Article 9. "Security interest" does not

include the special property interest of a buyer of goods on

identification of those goods to a contract for sale under Section

2--401, but a buyer may also acquire a "security interest" by complying

with article 9. Except as otherwise provided in Section 2--505, the

right of a seller or lessor of goods under Article 2 or 2-A to retain or

acquire possession of the goods is not a "security interest", but a

seller or lessor may also acquire a "security interest" by complying

with article 9. The retention or reservation of title by a seller of

goods notwithstanding shipment or delivery to the buyer under section

2--401 is limited in effect to a reservation of a "security interest."

Whether a transaction in the form of a lease creates a "security

interest" is determined pursuant to section 1--203.

(36) "Send", in connection with a record or notification means:

(A) to deposit in the mail, deliver for transmission, or transmit by

any other usual means of communication with postage or cost of

transmission provided for, addressed to any address reasonable under the

circumstances; or

(B) to cause the record or notification to be received within the time

it would have been received if properly sent pursuant to subparagraph

(A).

(37) "Sign" means, with present intent to authenticate or adopt a

record:

(A) execute or adopt a tangible symbol; or

(B) attach to or logically associate with the record an electronic

symbol, sound, or process.

"Signed, "signing", and "signature" have corresponding meanings.

(38) "State" means a state of the United States, the District of

Columbia, Puerto Rico, the United States Virgin Islands, or any

territory or insular possession subject to the jurisdiction of the

United States.

(39) "Surety" includes a guarantor or other secondary obligor.

(40) "Term" means a portion of an agreement that relates to a

particular matter.

(41) "Unauthorized signature" means a signature made without actual,

implied, or apparent authority. The term includes a forgery.

(42) "Warehouse receipt" means a document of title issued by a person

engaged in the business of storing goods for hire.

(43) "Writing" includes printing, typewriting, or any other

intentional reduction to tangible form. "Written" has a corresponding

meaning.

Section 1--202. Notice; Knowledge.

(a) Subject to subsection (f), a person has "notice" of a fact if the

person:

(1) has actual knowledge of it;

(2) has received a notice or notification of it; or

(3) from all the facts and circumstances known to the person at the

time in question, has reason to know that it exists.

(b) "Knowledge" means actual knowledge. "Knows" has a corresponding

meaning.

(c) "Discover", "learn", or words of similar import refer to knowledge

rather than to reason to know.

(d) A person "notifies" or "gives" a notice or notification to another

person by taking such steps as may be reasonably required to inform the

other person in ordinary course, whether or not the other person

actually comes to know of it.

(e) Subject to subsection (f), a person "receives" a notice or

notification when:

(1) it comes to that person's attention; or

(2) it is duly delivered in a form reasonable under the circumstances

at the place of business through which the contract was made or at

another location held out by that person as the place for receipt of

such communications.

(f) Notice, knowledge, or a notice or notification received by an

organization is effective for a particular transaction from the time it

is brought to the attention of the individual conducting that

transaction and, in any event, from the time it would have been brought

to the individual's attention if the organization had exercised due

diligence. An organization exercises due diligence if it maintains

reasonable routines for communicating significant information to the

person conducting the transaction and there is reasonable compliance

with the routines. Due diligence does not require an individual acting

for the organization to communicate information unless the communication

is part of the individual's regular duties or the individual has reason

to know of the transaction and that the transaction would be materially

affected by the information.

Section 1--203. Lease Distinguished From Security Interest.

(a) Whether a transaction in the form of a lease creates a lease or

security interest is determined by the facts of each case.

(b) A transaction in the form of a lease creates a security interest

if the consideration that the lessee is to pay the lessor for the right

to possession and use of the goods is an obligation for the term of the

lease and is not subject to termination by the lessee, and:

(1) the original term of the lease is equal to or greater than the

remaining economic life of the goods;

(2) the lessee is bound to renew the lease for the remaining economic

life of the goods or is bound to become the owner of the goods;

(3) the lessee has an option to renew the lease for the remaining

economic life of the goods for no additional consideration or for

nominal additional consideration upon compliance with the lease

agreement; or

(4) the lessee has an option to become the owner of the goods for no

additional consideration or for nominal additional consideration upon

compliance with the lease agreement.

(c) A transaction in the form of a lease does not create a security

interest merely because:

(1) the present value of the consideration the lessee is obligated to

pay the lessor for the right to possession and use of the goods is

substantially equal to or is greater than the fair market value of the

goods at the time the lease is entered into;

(2) the lessee assumes risk of loss of the goods;

(3) the lessee agrees to pay, with respect to the goods, taxes,

insurance, filing, recording, or registration fees, or service or

maintenance costs;

(4) the lessee has an option to renew the lease or to become the owner

of the goods;

(5) the lessee has an option to renew the lease for a fixed rent that

is equal to or greater than the reasonably predictable fair market rent

for the use of the goods for the term of the renewal at the time the

option is to be performed; or

(6) the lessee has an option to become the owner of the goods for a

fixed price that is equal to or greater than the reasonably predictable

fair market value of the goods at the time the option is to be

performed.

(d) Additional consideration is nominal if it is less than the

lessee's reasonably predictable cost of performing under the lease

agreement if the option is not exercised. Additional consideration is

not nominal if:

(1) when the option to renew the lease is granted to the lessee, the

rent is stated to be the fair market rent for the use of the goods for

the term of the renewal determined at the time the option is to be

performed; or

(2) when the option to become the owner of the goods is granted to the

lessee, the price is stated to be the fair market value of the goods

determined at the time the option is to be performed.

(e) The "remaining economic life of the goods" and "reasonably

predictable" fair market rent, fair market value, or cost of performing

under the lease agreement must be determined with reference to the facts

and circumstances at the time the transaction is entered into.

Section 1--204. Value.

Except as otherwise provided in articles 3, 4, 5, and 12 of this act a

person gives value for rights if the person acquires them:

(a) in return for a binding commitment to extend credit or for the

extension of immediately available credit, whether or not drawn upon and

whether or not a charge-back is provided for in the event of

difficulties in collection;

(b) as security for, or in total or partial satisfaction of, a

preexisting claim;

(c) by accepting delivery under a preexisting contract for purchase;

or

(d) in return for any consideration sufficient to support a simple

contract.

Section 1--205. Reasonable Time; Seasonableness.

(a) Whether a time for taking an action required by this act is

reasonable depends on the nature, purpose, and circumstances of the

action.

(b) An action is taken seasonably if it is taken at or within the time

agreed or, if no time is agreed, at or within a reasonable time.

Section 1--206. Presumptions.

Whenever this act creates a "presumption" with respect to a fact, or

provides that a fact is "presumed," the trier of fact must find the

existence of the fact unless and until evidence is introduced that

supports a finding of its nonexistence.

Section 1--207. Statute of Frauds for Kinds of Personal Property Not

Otherwise Covered.

(a) Except in the cases described in subsection (b) of this section a

contract for the sale of personal property is not enforceable by way of

action or defense beyond five thousand dollars in amount or value of

remedy unless there is some writing which indicates that a contract for

sale has been made between the parties at a defined or stated price,

reasonably identifies the subject matter, and is signed by the party

against whom enforcement is sought or by his authorized agent.

(b) Subsection (a) of this section does not apply to contracts for the

sale of goods (Section 2--201) nor of securities (Section 8--113) nor to

security agreements (Section 9--203).

(c) Subsection (a) of this section does not apply to a qualified

financial contract as that term is defined in paragraph two of

subdivision b of section 5-701 of the general obligations law if either

(1) there is, as provided in paragraph three of subdivision b of section

5-701 of such law, sufficient evidence to indicate that a contract has

been made or (2) the parties thereto, by means of a prior or subsequent

written contract, have agreed to be bound by the terms of such qualified

financial contract from the time they reach agreement (by telephone, by

exchange of electronic messages, or otherwise) on those terms.

Section 1--301. Territorial Applicability; Parties' Power to Choose

Applicable Law.

(a) Except as otherwise provided in this section, when a transaction

bears a reasonable relation to this state and also to another state or

nation, the parties may agree that the law either of this state or of

such other state or nation shall govern their rights and duties so long

as none of the parties to the transaction is a consumer and a resident

of New York. Where a consumer is a resident of the state of New York,

New York state law shall apply.

(b) In the absence of an agreement effective under subsection (a), and

except as provided in subsection (c), this act applies to transactions

bearing an appropriate relation to this state.

(c) If one of the following provisions of this act specifies the

applicable law, that provision governs and a contrary agreement is

effective only to the extent permitted by the law so specified:

(1) Section 2--402;

(2) Sections 2-A--105 and 2-A--106;

(3) Section 4--102;

(4) Section 4-A--507;

(5) Section 5--116;

(6) Section 8--110;

(7) Sections 9--301 through 9--307; and

(8) Section 12--107.

Section 1--302. Variation by Agreement.

(a) Except as otherwise provided in subsection (b) or elsewhere in

this act, the effect of provisions of this act may be varied by

agreement.

(b) The obligations of good faith, diligence, reasonableness, and care

prescribed by this act may not be disclaimed by agreement. The parties,

by agreement, may determine the standards by which the performance of

those obligations is to be measured if those standards are not

manifestly unreasonable. Whenever this act requires an action to be

taken within a reasonable time, a time that is not manifestly

unreasonable may be fixed by agreement.

(c) The presence in certain provisions of this act of the phrase

"unless otherwise agreed", or words of similar import, does not imply

that the effect of other provisions may not be varied by agreement under

this section.

Section 1--303. Course of Performance, Course of Dealing, and Usage of

Trade.

(a) A "course of performance" is a sequence of conduct between the

parties to a particular transaction that exists if:

(1) the agreement of the parties with respect to the transaction

involves repeated occasions for performance by a party; and

(2) the other party, with knowledge of the nature of the performance

and opportunity for objection to it, accepts the performance or

acquiesces to it without objection.

(b) A "course of dealing" is a sequence of conduct concerning previous

transactions between the parties to a particular transaction that is

fairly to be regarded as establishing a common basis of understanding

for interpreting their expressions and other conduct.

(c) A "usage of trade" is any practice or method of dealing having

such regularity of observance in a place, vocation, or trade as to

justify an expectation that it will be observed with respect to the

transaction in question. The existence and scope of such a usage must be

proved as facts. If it is established that such a usage is embodied in a

trade code or similar record, the interpretation of the record is a

question of law.

(d) A course of performance or course of dealing between the parties

or usage of trade in the vocation or trade in which they are engaged or

of which they are or should be aware is relevant in ascertaining the

meaning of the parties' agreement, may give particular meaning to

specific terms of the agreement, and may supplement or qualify the terms

of the agreement. A usage of trade applicable in the place in which part

of the performance under the agreement is to occur may be so utilized as

to that part of the performance.

(e) Except as otherwise provided in subsection (f), the express terms

of an agreement and any applicable course of performance, course of

dealing, or usage of trade must be construed whenever reasonable as

consistent with each other. If such a construction is unreasonable:

(1) express terms prevail over course of performance, course of

dealing, and usage of trade;

(2) course of performance prevails over course of dealing and usage of

trade; and

(3) course of dealing prevails over usage of trade.

(f) Subject to Section 2--209, a course of performance is relevant to

show a waiver or modification of any term inconsistent with the course

of performance.

(g) Evidence of a relevant usage of trade offered by one party is not

admissible unless that party has given the other party notice that the

court finds sufficient to prevent unfair surprise to the other party.

Section 1--304. Obligation of Good Faith.

Every contract or duty within this act imposes an obligation of good

faith in its performance and enforcement.

Section 1--305. Remedies to be Liberally Administered.

(a) The remedies provided by this act must be liberally administered

to the end that the aggrieved party may be put in as good a position as

if the other party had fully performed but neither consequential or

special damages nor penal damages may be had except as specifically

provided in this act or by other rule of law.

(b) Any right or obligation declared by this act is enforceable by

action unless the provision declaring it specifies a different and

limited effect.

Section 1--306. Waiver or Renunciation of Claim or Right After Breach.

A claim or right arising out of an alleged breach may be discharged in

whole or in part without consideration by agreement of the aggrieved

party in a signed record.

Section 1--307. Prima Facie evidence by Third-party Documents.

A document in due form purporting to be a bill of lading, policy or

certificate of insurance, official weigher's or inspector's certificate,

consular invoice, or any other document authorized or required by the

contract to be issued by a third party is prima facie evidence of its

own authenticity and genuineness and of the facts stated in the document

by the third party.

Section 1--308. Performance or Acceptance Under Reservation of Rights.

A party that with explicit reservation of rights performs or promises

performance or assents to performance in a manner demanded or offered by

the other party does not thereby prejudice the rights reserved. Such

words as "without prejudice," "under protest," or the like are

sufficient.

Section 1--309. Option to Accelerate at Will.

A term providing that one party or that party's successor in interest

may accelerate payment or performance or require collateral or

additional collateral "at will" or when the party "deems itself

insecure," or words of similar import, means that the party has power to

do so only if that party in good faith believes that the prospect of

payment or performance is impaired. The burden of establishing lack of

good faith is on the party against which the power has been exercised.

Section 1--310. Subordinated Obligations.

An obligation may be issued as subordinated to performance of another

obligation of the person obligated, or a creditor may subordinate its

right to performance of an obligation by agreement with either the

person obligated or another creditor of the person obligated.

Subordination does not create a security interest as against either the

common debtor or a subordinated creditor.

Section 2--101. Short Title.

This Article shall be known and may be cited as Uniform Commercial

Code--Sales.

Section 2--102. Scope; Certain Security and Other Transactions Excluded

From This Article.

(1) Unless the context otherwise requires, and except as provided in

subsection (3), this Article applies to transactions in goods and, in

the case of a hybrid transaction, it applies to the extent provided in

subsection (2).

(2) In a hybrid transaction:

(a) If the sale-of-goods aspects do not predominate, only the

provisions of this Article which relate primarily to the sale-of-goods

aspects of the transaction apply, and the provisions that relate

primarily to the transaction as a whole do not apply.

(b) If the sale-of-goods aspects predominate, this Article applies to

the transaction but does not preclude application in appropriate

circumstances of other law to aspects of the transaction which do not

relate to the sale of goods.

(3) This Article does not:

(a) apply to a transaction that, even though in the form of an

unconditional contract to sell or present sale, operates only to create

a security interest; or

(b) impair or repeal a statute regulating sales to consumers, farmers,

or other specified classes of buyers.

Section 2--103. Definitions and Index of Definitions.

(1) In this Article unless the context otherwise requires

(a) "Buyer" means a person who buys or contracts to buy goods.

(b) "Good faith" in the case of a merchant means honesty in fact

and the observance of reasonable commercial standards of fair

dealing in the trade.

(c) "Receipt" of goods means taking physical possession of them.

(d) "Seller" means a person who sells or contracts to sell goods.

(2) Other definitions applying to this Article or to specified Parts

thereof, and the sections in which they appear are:

"Acceptance". Section 2--606.

"Banker's credit". Section 2--325.

"Between merchants". Section 2--104.

"Cancellation". Section 2--106 (4).

"Commercial unit". Section 2--105.

"Confirmed credit". Section 2--325.

"Conforming to contract". Section 2--106.

"Contract for sale". Section 2--106.

"Cover". Section 2--712.

"Entrusting". Section 2--403.

"Financing agency". Section 2--104.

"Future goods". Section 2--105.

"Goods". Section 2--105.

"Identification". Section 2--501.

"Installment contract". Section 2--612.

"Letter of Credit". Section 2--325.

"Lot". Section 2--105.

"Merchant". Section 2--104.

"Overseas". Section 2--323.

"Person in position of seller". Section 2--707.

"Present sale". Section 2--106.

"Sale". Section 2--106.

"Sale on approval". Section 2--326.

"Sale or return". Section 2--326.

"Termination". Section 2--106.

(3) The following definitions in other Articles apply to this Article:

"Check". Section 3--104.

"Consignee". Section 7--102.

"Consignor". Section 7--102.

"Consumer goods". Section 9--102.

"Control". Section 7--106.

"Dishonor". Section 3--507.

"Draft". Section 3--104.

(4) In addition Article 1 contains general definitions and principles

of construction and interpretation applicable throughout this Article.

Section 2--104. Definitions: "Merchant"; "Between Merchants"; "Financing

Agency".

(1) "Merchant" means a person who deals in goods of the kind or

otherwise by his occupation holds himself out as having knowledge or

skill peculiar to the practices or goods involved in the transaction or

to whom such knowledge or skill may be attributed by his employment of

an agent or broker or other intermediary who by his occupation holds

himself out as having such knowledge or skill.

(2) "Financing agency" means a bank, finance company or other person

who in the ordinary course of business makes advances against goods or

documents of title or who by arrangement with either the seller or the

buyer intervenes in ordinary course to make or collect payment due or

claimed under the contract for sale, as by purchasing or paying the

seller's draft or making advances against it or by merely taking it for

collection whether or not documents of title accompany the draft.

"Financing agency" includes also a bank or other person who similarly

intervenes between persons who are in the position of seller and buyer

in respect to the goods (Section 2--707).

(3) "Between merchants" means in any transaction with respect to which

both parties are chargeable with the knowledge or skill of merchants.

Section 2--105. Definitions: Transferability; "Goods"; "Future" Goods;

"Lot"; "Commercial Unit".

(1) "Goods" means all things (including specially manufactured goods)

which are movable at the time of identification to the contract for sale

other than the money in which the price is to be paid, investment

securities (Article 8) and things in action. "Goods" also includes the

unborn young of animals and growing crops and other identified things

attached to realty as described in the section on goods to be severed

from realty (Section 2--107).

(2) Goods must be both existing and identified before any interest in

them can pass. Goods which are not both existing and identified are

"future" goods. A purported present sale of future goods or of any

interest therein operates as a contract to sell.

(3) There may be a sale of a part interest in existing identified

goods.

(4) An undivided share in an identified bulk of fungible goods is

sufficiently identified to be sold although the quantity of the bulk is

not determined. Any agreed proportion of such a bulk or any quantity

thereof agreed upon by number, weight or other measure may to the extent

of the seller's interest in the bulk be sold to the buyer who then

becomes an owner in common.

(5) "Lot" means a parcel or a single article which is the subject

matter of a separate sale or delivery, whether or not it is sufficient

to perform the contract.

(6) "Commercial unit" means such a unit of goods as by commercial

usage is a single whole for purposes of sale and division of which

materially impairs its character or value on the market or in use. A

commercial unit may be a single article (as a machine) or a set of

articles (as a suite of furniture or an assortment of sizes) or a

quantity (as a bale, gross, or carload) or any other unit treated in use

or in the relevant market as a single whole.

Section 2--106. Definitions. "Contract"; "Agreement"; "Contract for

Sale"; "Sale"; "Present Sale"; "Conforming" to

Contract; "Termination"; "Cancellation"; "Hybrid

Transaction".

(1) In this Article, unless the context otherwise requires, "contract"

and "agreement" are limited to those relating to the present or future

sale of goods. "Contract for sale" includes both a present sale of goods

and a contract to sell goods at a future time. A "sale" consists in the

passing of title from the seller to the buyer for a price (Section

2--401). A "present sale" means a sale which is accomplished by the

making of the contract.

(2) Goods or conduct including any part of a performance are

"conforming" or conform to the contract when they are in accordance with

the obligations under the contract.

(3) "Termination" occurs when either party pursuant to a power created

by agreement or law puts an end to the contract otherwise than for its

breach. On "termination" all obligations which are still executory on

both sides are discharged but any right based on prior breach or

performance survives.

(4) "Cancellation" occurs when either party puts an end to the

contract for breach by the other and its effect is the same as that of

"termination" except that the cancelling party also retains any remedy

for breach of the whole contract or any unperformed balance.

(5) "Hybrid transaction" means a single transaction involving a sale

of goods and:

(a) the provision of services;

(b) a lease of other goods; or

(c) a sale, lease, or license of property other than goods.

Section 2--107. Goods to Be Severed From Realty: Recording.

(1) A contract for the sale of minerals or the like (including oil and

gas) or a structure or its materials to be removed from realty is a

contract for the sale of goods within this Article if they are to be

severed by the seller but until severance a purported present sale

thereof which is not effective as a transfer of an interest in land is

effective only as a contract to sell.

(2) A contract for the sale apart from the land of growing crops or

other things attached to realty and capable of severance without

material harm thereto but not described in subsection (1) or of timber

to be cut is a contract for the sale of goods within this Article

whether the subject matter is to be severed by the buyer or by the

seller even though it forms part of the realty at the time of

contracting, and the parties can by identification effect a present sale

before severance.

(3) The provisions of this section are subject to any third party

rights provided by the law relating to realty records, and the contract

for sale may be executed and recorded as a document transferring an

interest in land and shall then constitute notice to third parties of

the buyer's rights under the contract for sale.

Section 2--201. Formal Requirements; Statute of Frauds.

(1) Except as otherwise provided in this section a contract for the

sale of goods for the price of $500 or more is not enforceable by way of

action or defense unless there is a record sufficient to indicate that a

contract for sale has been made between the parties and signed by the

party against whom enforcement is sought or by the party's authorized

agent or broker. A record is not insufficient because it omits or

incorrectly states a term agreed upon but the contract is not

enforceable under this subsection beyond the quantity of goods shown in

the record.

(2) Between merchants if within a reasonable time a record in

confirmation of the contract and sufficient against the sender is

received and the party receiving it has reason to know its contents, it

satisfies the requirements of subsection (1) against the party unless

notice in a record of objection to its contents is given within ten days

after it is received.

(3) A contract which does not satisfy the requirements of subsection

(1) but which is valid in other respects is enforceable

(a) if the goods are to be specially manufactured for the buyer

and are not suitable for sale to others in the ordinary

course of the seller's business and the seller, before notice

of repudiation is received and under circumstances which

reasonably indicate that the goods are for the buyer, has

made either a substantial beginning of their manufacture or

commitments for their procurement; or

(b) if the party against whom enforcement is sought admits in his

pleading, testimony or otherwise in court that a contract for

sale was made, but the contract is not enforceable under this

provision beyond the quantity of goods admitted; or

(c) with respect to goods for which payment has been made and

accepted or which have been received and accepted (Section

2--606).

(4) Subsection one does not apply to a qualified financial contract as

that term is defined in paragraph two of subdivision b of section 5-701

of the general obligations law if either (a) there is, as provided in

paragraph three of subdivision b of section 5-701 of such law,

sufficient evidence to indicate that a contract has been made or (b) the

parties thereto, by means of a prior or subsequent written contract,

have agreed to be bound by the terms of such qualified financial

contract from the time they reach agreement (by telephone, by exchange

or electronic messages, or otherwise) on those terms.

Section 2--202. Final Written Expression: Parol or Extrinsic Evidence.

Terms with respect to which the confirmatory memoranda of the parties

agree or which are otherwise set forth in a record intended by the

parties as a final expression of their agreement with respect to such

terms as are included therein may not be contradicted by evidence of any

prior agreement or of a contemporaneous oral agreement but may be

explained or supplemented

(a) by course of performance, course of dealing, or usage of trade

(Section 1--303); and

(b) by evidence of consistent additional terms unless the court finds

the record to have been intended also as a complete and exclusive

statement of the terms of the agreement.

Section 2--203. Seals Inoperative.

The affixing of a seal to a record evidencing a contract for sale or

an offer to buy or sell goods does not constitute the record a sealed

instrument and the law with respect to sealed instruments does not apply

to such a contract or offer.

Section 2--204. Formation in General.

(1) A contract for sale of goods may be made in any manner sufficient

to show agreement, including conduct by both parties which recognizes

the existence of such a contract.

(2) An agreement sufficient to constitute a contract for sale may be

found even though the moment of its making is undetermined.

(3) Even though one or more terms are left open a contract for sale

does not fail for indefiniteness if the parties have intended to make a

contract and there is a reasonably certain basis for giving an

appropriate remedy.

Section 2--205. Firm Offers.

An offer by a merchant to buy or sell goods in a signed record which

by its terms gives assurance that it will be held open is not revocable,

for lack of consideration, during the time stated or if no time is

stated for a reasonable time, but in no event may such period of

irrevocability exceed three months; but any such term of assurance on a

form supplied by the offeree must be separately signed by the offeror.

Section 2--206. Offer and Acceptance in Formation of Contract.

(1) Unless otherwise unambiguously indicated by the language or

circumstances

(a) an offer to make a contract shall be construed as inviting

acceptance in any manner and by any medium reasonable in the

circumstances;

(b) an order or other offer to buy goods for prompt or current

shipment shall be construed as inviting acceptance either by

a prompt promise to ship or by the prompt or current shipment

of conforming or non-conforming goods, but such a shipment of

non-conforming goods does not constitute an acceptance if the

seller seasonably notifies the buyer that the shipment is

offered only as an accommodation to the buyer.

(2) Where the beginning of a requested performance is a reasonable

mode of acceptance an offeror who is not notified of acceptance within a

reasonable time may treat the offer as having lapsed before acceptance.

Section 2--207. Additional Terms in Acceptance or Confirmation.

(1) A definite and seasonable expression of acceptance or a written

confirmation which is sent within a reasonable time operates as an

acceptance even though it states terms additional to or different from

those offered or agreed upon, unless acceptance is expressly made

conditional on assent to the additional or different terms.

(2) The additional terms are to be construed as proposals for addition

to the contract. Between merchants such terms become part of the

contract unless:

(a) the offer expressly limits acceptance to the terms of the

offer;

(b) they materially alter it; or

(c) notification of objection to them has already been given or

is given within a reasonable time after notice of them is

received.

(3) Conduct by both parties which recognizes the existence of a

contract is sufficient to establish a contract for sale although the

writings of the parties do not otherwise establish a contract. In such

case the terms of the particular contract consist of those terms on

which the writings of the parties agree, together with any supplementary

terms incorporated under any other provisions of this Act.

Section 2--208. Course of Performance or Practical Construction.

(1) Where the contract for sale involves repeated occasions for

performance by either party with knowledge of the nature of the

performance and opportunity for objection to it by the other, any course

of performance accepted or acquiesced in without objection shall be

relevant to determine the meaning of the agreement.

(2) The express terms of the agreement and any such course of

performance, as well as any course of dealing and usage of trade, shall

be construed whenever reasonable as consistent with each other; but when

such construction is unreasonable, express terms shall control course of

performance and course of performance shall control both course of

dealing and usage of trade (Section 1--205).

(3) Subject to the provisions of the next section on modification and

waiver, such course of performance shall be relevant to show a waiver or

modification of any term inconsistent with such course of performance.

Section 2--209. Modification, Rescission and Waiver.

(1) An agreement modifying a contract within this Article needs no

consideration to be binding.

(2) A signed agreement which excludes modification or rescission

except by a signed writing or other signed record cannot be otherwise

modified or rescinded, but except as between merchants such a

requirement on a form supplied by the merchant must be separately signed

by the other party.

(3) The requirements of the statute of frauds section of this Article

(Section 2--201) must be satisfied if the contract as modified is within

its provisions.

(4) Although an attempt at modification or rescission does not satisfy

the requirements of subsection (2) or (3) it can operate as a waiver.

(5) A party who has made a waiver affecting an executory portion of

the contract may retract the waiver by reasonable notification received

by the other party that strict performance will be required of any term

waived, unless the retraction would be unjust in view of a material

change of position in reliance on the waiver.

Section 2--210. Delegation of Performance; Assignment of Rights.

(1) A party may perform his duty through a delegate unless otherwise

agreed or unless the other party has a substantial interest in having

his original promisor perform or control the acts required by the

contract. No delegation of performance relieves the party delegating of

any duty to perform or any liability for breach.

(2) Except as otherwise provided in Section 9--406, unless otherwise

agreed, all rights of either seller or buyer can be assigned except

where the assignment would materially change the duty of the other

party, or increase materially the burden or risk imposed on him by his

contract, or impair materially his chance of obtaining return

performance. A right to damages for breach of the whole contract or a

right arising out of the assignor's due performance of his entire

obligation can be assigned despite agreement otherwise.

(3) Unless the circumstances indicate the contrary a prohibition of

assignment of "the contract" is to be construed as barring only the

delegation to the assignee of the assignor's performance.

(4) An assignment of "the contract" or of "all my rights under the

contract" or an assignment in similar general terms is an assignment of

rights and unless the language or the circumstances (as in an assignment

for security) indicate the contrary, it is a delegation of performance

of the duties of the assignor and its acceptance by the assignee

constitutes a promise by him to perform those duties. This promise is

enforceable by either the assignor or the other party to the original

contract.

(5) The other party may treat any assignment which delegates

performance as creating reasonable grounds for insecurity and may

without prejudice to his rights against the assignor demand assurances

from the assignee (Section 2--609).

Section 2--301. General Obligations of Parties.

The obligation of the seller is to transfer and deliver and that of

the buyer is to accept and pay in accordance with the contract.

Section 2--302. Unconscionable Contract or Clause.

(1) If the court as a matter of law finds the contract or any clause

of the contract to have been unconscionable at the time it was made the

court may refuse to enforce the contract, or it may enforce the

remainder of the contract without the unconscionable clause, or it may

so limit the application of any unconscionable clause as to avoid any

unconscionable result.

(2) When it is claimed or appears to the court that the contract or

any clause thereof may be unconscionable the parties shall be afforded a

reasonable opportunity to present evidence as to its commercial setting,

purpose and effect to aid the court in making the determination.

Section 2--303. Allocation or Division of Risks.

Where this Article allocates a risk or a burden as between the parties

"unless otherwise agreed", the agreement may not only shift the

allocation but may also divide the risk or burden.

Section 2--304. Price Payable in Money, Goods, Realty, or Otherwise.

(1) The price can be made payable in money or otherwise. If it is

payable in whole or in part in goods each party is a seller of the goods

which he is to transfer.

(2) Even though all or part of the price is payable in an interest in

realty the transfer of the goods and the seller's obligations with

reference to them are subject to this Article, but not the transfer of

the interest in realty or the transferor's obligations in connection

therewith.

Section 2--305. Open Price Term.

(1) The parties if they so intend can conclude a contract for sale

even though the price is not settled. In such a case the price is a

reasonable price at the time for delivery if

(a) nothing is said as to price; or

(b) the price is left to be agreed by the parties and they fail

to agree; or

(c) the price is to be fixed in terms of some agreed market or

other standard as set or recorded by a third person or agency

and it is not so set or recorded.

(2) A price to be fixed by the seller or by the buyer means a price

for him to fix in good faith.

(3) When a price left to be fixed otherwise than by agreement of the

parties fails to be fixed through fault of one party the other may at

his option treat the contract as cancelled or himself fix a reasonable

price.

(4) Where, however, the parties intend not to be bound unless the

price be fixed or agreed and it is not fixed or agreed there is no

contract. In such a case the buyer must return any goods already

received or if unable so to do must pay their reasonable value at the

time of delivery and the seller must return any portion of the price

paid on account.

Section 2--306. Output, Requirements and Exclusive Dealings.

(1) A term which measures the quantity by the output of the seller or

the requirements of the buyer means such actual output or requirements

as may occur in good faith, except that no quantity unreasonably

disproportionate to any stated estimate or in the absence of a stated

estimate to any normal or otherwise comparable prior output or

requirements may be tendered or demanded.

(2) A lawful agreement by either the seller or the buyer for exclusive

dealing in the kind of goods concerned imposes unless otherwise agreed

an obligation by the seller to use best efforts to supply the goods and

by the buyer to use best efforts to promote their sale.

Section 2--307. Delivery in Single Lot or Several Lots.

Unless otherwise agreed all goods called for by a contract for sale

must be tendered in a single delivery and payment is due only on such

tender but where the circumstances give either party the right to make

or demand delivery in lots the price if it can be apportioned may be

demanded for each lot.

Section 2--308. Absence of Specified Place for Delivery.

Unless otherwise agreed

(a) the place for delivery of goods is the seller's place of business

or if he has none his residence; but

(b) in a contract for sale of identified goods which to the knowledge

of the parties at the time of contracting are in some other place, that

place is the place for their delivery; and

(c) documents of title may be delivered through customary banking

channels.

Section 2--309. Absence of Specific Time Provisions; Notice of

Termination.

(1) The time for shipment or delivery or any other action under a

contract if not provided in this Article or agreed upon shall be a

reasonable time.

(2) Where the contract provides for successive performances but is

indefinite in duration it is valid for a reasonable time but unless

otherwise agreed may be terminated at any time by either party.

(3) Termination of a contract by one party except on the happening of

an agreed event requires that reasonable notification be received by the

other party and an agreement dispensing with notification is invalid if

its operation would be unconscionable.

Section 2--310. Open Time for Payment or Running of Credit; Authority to

Ship Under Reservation.

Unless otherwise agreed

(a) payment is due at the time and place at which the buyer is to

receive the goods even though the place of shipment is the place of

delivery; and

(b) if the seller is authorized to send the goods he may ship them

under reservation, and may tender the documents of title, but the buyer

may inspect the goods after their arrival before payment is due unless

such inspection is inconsistent with the terms of the contract (Section

2--513); and

(c) if delivery is authorized and made by way of documents of title

otherwise than by subsection (b) then payment is due regardless of where

the goods are to be received (i) at the time and place at which the

buyer is to receive delivery of the tangible documents or (ii) at the

time the buyer is to receive delivery of the electronic documents and at

the seller's place of business or if none, the seller's residence; and

(d) where the seller is required or authorized to ship the goods on

credit the credit period runs from the time of shipment but post-dating

the invoice or delaying its dispatch will correspondingly delay the

starting of the credit period.

Section 2--311. Options and Cooperation Respecting Performance.

(1) An agreement for sale which is otherwise sufficiently definite

(subsection (3) of Section 2--204) to be a contract is not made invalid

by the fact that it leaves particulars of performance to be specified by

one of the parties. Any such specification must be made in good faith

and within limits set by commercial reasonableness.

(2) Unless otherwise agreed specifications relating to assortment of

the goods are at the buyer's option and except as otherwise provided in

subsections (1) (c) and (3) of Section 2--319 specifications or

arrangements relating to shipment are at the seller's option.

(3) Where such specification would materially affect the other party's

performance but is not seasonably made or where one party's cooperation

is necessary to the agreed performance of the other but is not

seasonably forthcoming, the other party in addition to all other

remedies

(a) is excused for any resulting delay in his own performance;

and

(b) may also either proceed to perform in any reasonable manner

or after the time for a material part of his own performance

treat the failure to specify or to cooperate as a breach by

failure to deliver or accept the goods.

Section 2--312. Warranty of Title and Against Infringement; Buyer's

Obligation Against Infringement.

(1) Subject to subsection (2) there is in a contract for sale a

warranty by the seller that

(a) the title conveyed shall be good, and its transfer rightful;

and

(b) the goods shall be delivered free from any security interest

or other lien or encumbrance of which the buyer at the time

of contracting has no knowledge.

(2) A warranty under subsection (1) will be excluded or modified only

by specific language or by circumstances which give the buyer reason to

know that the person selling does not claim title in himself or that he

is purporting to sell only such right or title as he or a third person

may have.

(3) Unless otherwise agreed a seller who is a merchant regularly

dealing in goods of the kind warrants that the goods shall be delivered

free of the rightful claim of any third person by way of infringement or

the like but a buyer who furnishes specifications to the seller must

hold the seller harmless against any such claim which arises out of

compliance with the specifications.

Section 2--313. Express Warranties by Affirmation, Promise, Description,

Sample.

(1) Express warranties by the seller are created as follows:

(a) Any affirmation of fact or promise made by the seller to the

buyer which relates to the goods and becomes part of the

basis of the bargain creates an express warranty that the

goods shall conform to the affirmation or promise.

(b) Any description of the goods which is made part of the basis

of the bargain creates an express warranty that the goods

shall conform to the description.

(c) Any sample or model which is made part of the basis of the

bargain creates an express warranty that the whole of the

goods shall conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that

the seller use formal words such as "warrant" or "guarantee" or that he

have a specific intention to make a warranty, but an affirmation merely

of the value of the goods or a statement purporting to be merely the

seller's opinion or commendation of the goods does not create a

warranty.

Section 2--314. Implied Warranty: Merchantability; Usage of Trade.

(1) Unless excluded or modified (Section 2--316), a warranty that the

goods shall be merchantable is implied in a contract for their sale if

the seller is a merchant with respect to goods of that kind. Under this

section the serving for value of food or drink to be consumed either on

the premises or elsewhere is a sale.

(2) Goods to be merchantable must be at least such as

(a) pass without objection in the trade under the contract

description; and

(b) in the case of fungible goods, are of fair average quality

within the description; and

(c) are fit for the ordinary purposes for which such goods are

used; and

(d) run, within the variations permitted by the agreement, of

even kind, quality and quantity within each unit and among

all units involved; and

(e) are adequately contained, packaged, and labeled as the

agreement may require; and

(f) conform to the promises or affirmations of fact made on the

container or label if any.

(3) Unless excluded or modified (Section 2--316) other implied

warranties may arise from course of dealing or usage of trade.

Section 2--315. Implied Warranty: Fitness for Particular Purpose.

Where the seller at the time of contracting has reason to know any

particular purpose for which the goods are required and that the buyer

is relying on the seller's skill or judgment to select or furnish

suitable goods, there is unless excluded or modified under the next

section an implied warranty that the goods shall be fit for such

purpose.

Section 2--316. Exclusion or Modification of Warranties.

(1) Words or conduct relevant to the creation of an express warranty

and words or conduct tending to negate or limit warranty shall be

construed wherever reasonable as consistent with each other; but subject

to the provisions of this Article on parol or extrinsic evidence

(Section 2--202) negation or limitation is inoperative to the extent

that such construction is unreasonable.

(2) Subject to subsection (3), to exclude or modify the implied

warranty of merchantability or any part of it the language must mention

merchantability and in case of a writing must be conspicuous, and to

exclude or modify any implied warranty of fitness the exclusion must be

by a writing and conspicuous. Language to exclude all implied warranties

of fitness is sufficient if it states, for example, that "There are no

warranties which extend beyond the description on the face hereof. "

(3) Notwithstanding subsection (2)

(a) unless the circumstances indicate otherwise, all implied

warranties are excluded by expressions like "as is", "with

all faults" or other language which in common understanding

calls the buyer's attention to the exclusion of warranties

and makes plain that there is no implied warranty; and

(b) when the buyer before entering into the contract has examined

the goods or the sample or model as fully as he desired or

has refused to examine the goods there is no implied warranty

with regard to defects which an examination ought in the

circumstances to have revealed to him; and

(c) an implied warranty can also be excluded or modified by

course of dealing or course of performance or usage of trade.

(4) Remedies for breach of warranty can be limited in accordance with

the provisions of this Article on liquidation or limitation of damages

and on contractual modification of remedy (Sections 2--718 and 2--719).

Section 2--317. Cumulation and Conflict of Warranties Express or

Implied.

Warranties whether express or implied shall be construed as consistent

with each other and as cumulative, but if such construction is

unreasonable the intention of the parties shall determine which warranty

is dominant. In ascertaining that intention the following rules apply:

(a) Exact or technical specifications displace an inconsistent sample

or model or general language of description.

(b) A sample from an existing bulk displaces inconsistent general

language of description.

(c) Express warranties displace inconsistent implied warranties other

than an implied warranty of fitness for a particular purpose.

Section 2--318. Third Party Beneficiaries of Warranties Express or

Implied.

A seller's warranty whether express or implied extends to any natural

person if it is reasonable to expect that such person may use, consume

or be affected by the goods and who is injured in person by breach of

the warranty. A seller may not exclude or limit the operation of this

section.

Section 2--319. F. O. B. and F. A. S. Terms.

(1) Unless otherwise agreed the term F. O. B. (which means "free on

board") at a named place, even though used only in connection with the

stated price, is a delivery term under which

(a) when the term is F. O. B. the place of shipment, the seller

must at that place ship the goods in the manner provided in

this Article (Section 2--504) and bear the expense and risk

of putting them into the possession of the carrier; or

(b) when the term is F. O. B. the place of destination, the

seller must at his own expense and risk transport the goods

to that place and there tender delivery of them in the manner

provided in this Article (Section 2--503);

(c) when under either (a) or (b) the term is also F. O. B.

vessel, car or other vehicle, the seller must in addition at

his own expense and risk load the goods on board. If the term

is F. O. B. vessel the buyer must name the vessel and in an

appropriate case the seller must comply with the provisions

of this Article on the form of bill of lading (Section

2--323).

(2) Unless otherwise agreed the term F. A. S. vessel (which means

"free alongside") at a named port, even though used only in connection

with the stated price, is a delivery term under which the seller must

(a) at his own expense and risk deliver the goods alongside the

vessel in the manner usual in that port or on a dock

designated and provided by the buyer; and

(b) obtain and tender a receipt for the goods in exchange for

which the carrier is under a duty to issue a bill of lading.

(3) Unless otherwise agreed in any case falling within subsection (1)

(a) or (c) or subsection (2) the buyer must seasonably give any needed

instructions for making delivery, including when the term is F. A. S.

or F. O. B. the loading berth of the vessel and in an appropriate case

its name and sailing date. The seller may treat the failure of needed

instructions as a failure of cooperation under this Article (Section

2--311). He may also at his option move the goods in any reasonable

manner preparatory to delivery or shipment.

(4) Under the term F. O. B. vessel or F. A. S. unless otherwise agreed

the buyer must make payment against tender of the required documents and

the seller may not tender nor the buyer demand delivery of the goods in

substitution for the documents.

Section 2--320. C. I. F. and C. & F. Terms.

(1) The term C. I. F. means that the price includes in a lump sum the

cost of the goods and the insurance and freight to the named

destination. The term C. & F. or C. F. means that the price so includes

cost and freight to the named destination.

(2) Unless otherwise agreed and even though used only in connection

with the stated price and destination, the term C. I. F. destination or

its equivalent requires the seller at his own expense and risk to

(a) put the goods into the possession of a carrier at the port

for shipment and obtain a negotiable bill or bills of lading

covering the entire transportation to the named destination;

and

(b) load the goods and obtain a receipt from the carrier (which

may be contained in the bill of lading) showing that the

freight has been paid or provided for; and

(c) obtain a policy or certificate of insurance, including any

war risk insurance, of a kind and on terms then current at

the port of shipment in the usual amount, in the currency of

the contract, shown to cover the same goods covered by the

bill of lading and providing for payment of loss to the order

of the buyer or for the account of whom it may concern; but

the seller may add to the price the amount of the premium for

any such war risk insurance; and

(d) prepare an invoice of the goods and procure any other

documents required to effect shipment or to comply with the

contract; and

(e) forward and tender with commercial promptness all the

documents in due form and with any indorsement necessary to

perfect the buyer's rights.

(3) Unless otherwise agreed the term C. & F. or its equivalent has the

same effect and imposes upon the seller the same obligations and risks

as a C. I. F. term except the obligation as to insurance.

(4) Under the term C. I. F. or C. & F. unless otherwise agreed the

buyer must make payment against tender of the required documents and the

seller may not tender nor the buyer demand delivery of the goods in

substitution for the documents.

Section 2--321. C. I. F. or C. & F.: "Net Landed Weights"; "Payment on

Arrival"; Warranty of Condition on Arrival.

Under a contract containing a term C. I. F. or C. & F.

(1) Where the price is based on or is to be adjusted according to "net

landed weights", "delivered weights", "out turn" quantity or quality or

the like, unless otherwise agreed the seller must reasonably estimate

the price. The payment due on tender of the documents called for by the

contract is the amount so estimated, but after final adjustment of the

price a settlement must be made with commercial promptness.

(2) An agreement described in subsection (1) or any warranty of

quality or condition of the goods on arrival places upon the seller the

risk of ordinary deterioration, shrinkage and the like in transportation

but has no effect on the place or time of identification to the contract

for sale or delivery or on the passing of the risk of loss.

(3) Unless otherwise agreed where the contract provides for payment on

or after arrival of the goods the seller must before payment allow such

preliminary inspection as is feasible; but if the goods are lost

delivery of the documents and payment are due when the goods should have

arrived.

Section 2--322. Delivery "Ex-Ship".

(1) Unless otherwise agreed a term for delivery of goods "ex-ship"

(which means from the carrying vessel) or in equivalent language is not

restricted to a particular ship and requires delivery from a ship which

has reached a place at the named port of destination where goods of the

kind are usually discharged.

(2) Under such a term unless otherwise agreed

(a) the seller must discharge all liens arising out of the

carriage and furnish the buyer with a direction which puts

the carrier under a duty to deliver the goods; and

(b) the risk of loss does not pass to the buyer until the goods

leave the ship's tackle or are otherwise properly unloaded.

Section 2--323. Form of Bill of Lading Required in Overseas Shipment;

"Overseas".

(1) Where the contract contemplates overseas shipment and contains a

term C. I. F. or C. & F. or F. O. B. vessel, the seller unless otherwise

agreed must obtain a negotiable bill of lading stating that the goods

have been loaded on board or, in the case of a term C. I. F. or C. &

F., received for shipment.

(2) Where in a case within subsection (1) a tangible bill of lading

has been issued in a set of parts, unless otherwise agreed if the

documents are not to be sent from abroad the buyer may demand tender of

the full set; otherwise only one part of the bill of lading need be

tendered. Even if the agreement expressly requires a full set:

(a) due tender of a single part is acceptable within the

provisions of this Article on cure of improper delivery

(subsection (1) of Section 2--508); and

(b) even though the full set is demanded, if the documents are

sent from abroad the person tendering an incomplete set may

nevertheless require payment upon furnishing an indemnity

which the buyer in good faith deems adequate.

(3) A shipment by water or by air or a contract contemplating such

shipment is "overseas" insofar as by usage of trade or agreement it is

subject to the commercial, financing or shipping practices

characteristic of international deep water commerce.

Section 2--324. "No Arrival, No Sale" Term.

Under a term "no arrival, no sale" or terms of like meaning, unless

otherwise agreed,

(a) the seller must properly ship conforming goods and if they arrive

by any means he must tender them on arrival but he assumes no obligation

that the goods will arrive unless he has caused the non-arrival; and

(b) where without fault of the seller the goods are in part lost or

have so deteriorated as no longer to conform to the contract or arrive

after the contract time, the buyer may proceed as if there had been

casualty to identified goods (Section 2--613).

Section 2--325. "Letter of Credit" Term; "Confirmed Credit".

(1) Failure of the buyer seasonably to furnish an agreed letter of

credit is a breach of the contract for sale.

(2) The delivery to seller of a proper letter of credit suspends the

buyer's obligation to pay. If the letter of credit is dishonored, the

seller may on seasonable notification to the buyer require payment

directly from him.

(3) Unless otherwise agreed the term "letter of credit" or "banker's

credit" in a contract for sale means an irrevocable credit issued by a

financing agency of good repute and, where the shipment is overseas, of

good international repute. The term "confirmed credit" means that the

credit must also carry the direct obligation of such an agency which

does business in the seller's financial market.

Section 2--326. Sale on Approval and Sale or Return; Rights of

Creditors.

(1) Unless otherwise agreed, if delivered goods may be returned by the

buyer even though they conform to the contract, the transaction is

(a) a "sale on approval" if the goods are delivered primarily for

use, and

(b) a "sale or return" if the goods are delivered primarily for

resale.

(2) Goods held on approval are not subject to the claims of the

buyer's creditors until acceptance; goods held on sale or return are

subject to such claims while in the buyer's possession.

(3) Any "or return" term of a contract for sale is to be treated as a

separate contract for sale within the statute of frauds section of this

Article (Section 2--201) and as contradicting the sale aspect of the

contract within the provisions of this Article on parol or extrinsic

evidence (Section 2--202).

Section 2--327. Special Incidents of Sale on Approval and Sale or

Return.

(1) Under a sale on approval unless otherwise agreed

(a) although the goods are identified to the contract the risk of

loss and the title do not pass to the buyer until acceptance;

and

(b) use of the goods consistent with the purpose of trial is not

acceptance but failure seasonably to notify the seller of

election to return the goods is acceptance, and if the goods

conform to the contract acceptance of any part is acceptance

of the whole; and

(c) after due notification of election to return, the return is

at the seller's risk and expense but a merchant buyer must

follow any reasonable instructions.

(2) Under a sale or return unless otherwise agreed

(a) the option to return extends to the whole or any commercial

unit of the goods while in substantially their original

condition, but must be exercised seasonably; and

(b) the return is at the buyer's risk and expense.

Section 2--328. Sale by Auction.

(1) In a sale by auction if goods are put up in lots each lot is the

subject of a separate sale.

(2) A sale by auction is complete when the auctioneer so announces by

the fall of the hammer or in other customary manner. Where a bid is made

while the hammer is falling in acceptance of a prior bid the auctioneer

may in his discretion reopen the bidding or declare the goods sold under

the bid on which the hammer was falling.

(3) Such a sale is with reserve unless the goods are in explicit terms

put up without reserve. In an auction with reserve the auctioneer may

withdraw the goods at any time until he announces completion of the

sale. In an auction without reserve, after the auctioneer calls for bids

on an article or lot, that article or lot cannot be withdrawn unless no

bid is made within a reasonable time. In either case a bidder may

retract his bid until the auctioneer's announcement of completion of the

sale, but a bidder's retraction does not revive any previous bid.

(4) If the auctioneer knowingly receives a bid on the seller's behalf

or the seller makes or procures such a bid, and notice has not been

given that liberty for such bidding is reserved, the buyer may at his

option avoid the sale or take the goods at the price of the last good

faith bid prior to the completion of the sale. This subsection shall not

apply to any bid at a forced sale.

Section 2--401. Passing of Title; Reservation for Security; Limited

Application of This Section.

Each provision of this Article with regard to the rights, obligations

and remedies of the seller, the buyer, purchasers or other third parties

applies irrespective of title to the goods except where the provision

refers to such title. Insofar as situations are not covered by the other

provisions of this Article and matters concerning title become material

the following rules apply:

(1) Title to goods cannot pass under a contract for sale prior to

their identification to the contract (Section 2--501), and unless

otherwise explicitly agreed the buyer acquires by their identification a

special property as limited by this Act. Any retention or reservation by

the seller of the title (property) in goods shipped or delivered to the

buyer is limited in effect to a reservation of a security interest.

Subject to these provisions and to the provisions of the Article on

Secured Transactions (Article 9), title to goods passes from the seller

to the buyer in any manner and on any conditions explicitly agreed on by

the parties.

(2) Unless otherwise explicitly agreed title passes to the buyer at

the time and place at which the seller completes his performance with

reference to the physical delivery of the goods, despite any reservation

of a security interest and even though a document of title is to be

delivered at a different time or place; and in particular and despite

any reservation of a security interest by the bill of lading

(a) if the contract requires or authorizes the seller to send the

goods to the buyer but does not require him to deliver them

at destination, title passes to the buyer at the time and

place of shipment; but

(b) if the contract requires delivery at destination, title

passes on tender there.

(3) Unless otherwise explicitly agreed where delivery is to be made

without moving the goods,

(a) if the seller is to deliver a tangible document of title,

title passes at the time when and the place where he delivers

such documents and if the seller is to deliver an electronic

document of title, title passes when the seller delivers the

document; or

(b) if the goods are at the time of contracting already

identified and no documents of title are to be delivered,

title passes at the time and place of contracting.

(4) A rejection or other refusal by the buyer to receive or retain the

goods, whether or not justified, or a justified revocation of acceptance

revests title to the goods in the seller. Such revesting occurs by

operation of law and is not a "sale".

Section 2--402. Rights of Seller's Creditors Against Sold Goods.

(1) Except as provided in subsections (2) and (3), rights of unsecured

creditors of the seller with respect to goods which have been identified

to a contract for sale are subject to the buyer's rights to recover the

goods under this Article (Sections 2--502 and 2--716).

(2) A creditor of the seller may treat a sale or an identification of

goods to a contract for sale as void if as against him a retention of

possession by the seller as fraudulent under any rule of law of the

state where the goods are situated, except that retention of possession

in good faith and current course of trade by a merchant-seller for a

commercially reasonable time after a sale or identification is not

fraudulent.

(3) Nothing in this Article shall be deemed to impair the rights of

creditors of the seller

(a) under the provisions of the Article on Secured Transactions

(Article 9); or

(b) where identification to the contract or delivery is made not

in current course of trade but in satisfaction of or as

security for a pre-existing claim for money, security or the

like and is made under circumstances which under any rule of

law of the state where the goods are situated would apart

from this Article constitute the transaction a fraudulent

transfer or voidable preference.

Section 2--403. Power to Transfer; Good Faith Purchase of Goods;

"Entrusting".

(1) A purchaser of goods acquires all title which his transferor had

or had power to transfer except that a purchaser of a limited interest

acquires rights only to the extent of the interest purchased. A person

with voidable title has power to transfer a good title to a good faith

purchaser for value. When goods have been delivered under a transaction

of purchase the purchaser has such power even though

(a) the transferor was deceived as to the identity of the

purchaser, or

(b) the delivery was in exchange for a check which is later

dishonored, or

(c) it was agreed that the transaction was to be a "cash sale",

or

(d) the delivery was procured through fraud punishable as

larcenous under the criminal law.

(2) Any entrusting of possession of goods to a merchant who deals in

goods of that kind gives him power to transfer all rights of the

entruster to a buyer in ordinary course of business.

(3) "Entrusting" includes any delivery and any acquiescence in

retention of possession regardless of any condition expressed between

the parties to the delivery or acquiescence and regardless of whether

the procurement of the entrusting or the possessor's disposition of the

goods has been such as to be larcenous under the criminal law.

(4) The rights of other purchasers of goods and of lien creditors are

governed by the Articles on Secured Transactions (Article 9), Bulk

Transfers (Article 6) and Documents of Title (Article 7).

Section 2--501. Insurable Interest in Goods; Manner of Identification of

Goods.

(1) The buyer obtains a special property and an insurable interest in

goods by identification of existing goods as goods to which the contract

refers even though the goods so identified are non-conforming and he has

an option to return or reject them. Such identification can be made at

any time and in any manner explicitly agreed to by the parties. In the

absence of explicit agreement identification occurs

(a) when the contract is made if it is for the sale of goods

already existing and identified;

(b) if the contract is for the sale of future goods other than

those described in paragraph (c), when goods are shipped,

marked or otherwise designated by the seller as goods to

which the contract refers;

(c) when the crops are planted or otherwise become growing crops

or the young are conceived if the contract is for the sale of

unborn young to be born within twelve months after

contracting or for the sale of crops to be harvested within

twelve months or the next normal harvest season after

contracting whichever is longer.

(2) The seller retains an insurable interest in goods so long as title

to or any security interest in the goods remains in him and where the

identification is by the seller alone he may until default or insolvency

or notification to the buyer that the identification is final substitute

other goods for those identified.

(3) Nothing in this section impairs any insurable interest recognized

under any other statute or rule of law.

Section 2--502. Buyer's Right to Goods on Seller's Repudiation, Failure

to Deliver, or Insolvency.

(1) Subject to subsections (2) and (3) and even though the goods have

not been shipped a buyer who has paid a part or all of the price of

goods in which he has a special property under the provisions of the

immediately preceding section may on making and keeping good a tender of

any unpaid portion of their price recover them from the seller if:

(a) in the case of goods bought for personal, family, or

household purposes, the seller repudiates or fails to deliver

as required by the contract; or

(b) in all cases, the seller becomes insolvent within ten days

after receipt of the first installment on their price.

(2) The buyer's right to recover the goods under paragraph (a) of

subsection (1) vests upon acquisition of a special property, even if the

seller had not then repudiated or failed to deliver.

(3) If the identification creating his special property has been made

by the buyer he acquires the right to recover the goods only if they

conform to the contract for sale.

Section 2--503. Manner of Seller's Tender of Delivery.

(1) Tender of delivery requires that the seller put and hold

conforming goods at the buyer's disposition and give the buyer any

notification reasonably necessary to enable him to take delivery. The

manner, time and place for tender are determined by the agreement and

this Article, and in particular

(a) tender must be at a reasonable hour, and if it is of goods

they must be kept available for the period reasonably

necessary to enable the buyer to take possession; but

(b) unless otherwise agreed the buyer must furnish facilities

reasonably suited to the receipt of the goods.

(2) Where the case is within the next section respecting shipment

tender requires that the seller comply with its provisions.

(3) Where the seller is required to deliver at a particular

destination tender requires that he comply with subsection (1) and also

in any appropriate case tender documents as described in subsections (4)

and (5) of this section.

(4) Where goods are in the possession of a bailee and are to be

delivered without being moved

(a) tender requires that the seller either tender a negotiable

document of title covering such goods or procure

acknowledgment by the bailee of the buyer's right to

possession of the goods; but

(b) tender to the buyer of a non-negotiable document of title or

of a record directing the bailee to deliver is sufficient

tender unless the buyer seasonably objects, and receipt by

the bailee of notification of the buyer's rights fixes those

rights as against the bailee and all third persons; but risk

of loss of the goods and of any failure by the bailee to

honor the non-negotiable document of title or to obey the

direction remains on the seller until the buyer has had a

reasonable time to present the document or direction, and a

refusal by the bailee to honor the document or to obey the

direction defeats the tender.

(5) Where the contract requires the seller to deliver documents

(a) he must tender all such documents in correct form, except as

provided in this Article with respect to bills of lading in a

set (subsection (2) of Section 2--323); and

(b) tender through customary banking channels is sufficient and

dishonor of a draft accompanying the documents constitutes

non-acceptance or rejection.

Section 2--504. Shipment by Seller.

Where the seller is required or authorized to send the goods to the

buyer and the contract does not require him to deliver them at a

particular destination, then unless otherwise agreed he must

(a) put the goods in the possession of such a carrier and make such a

contract for their transportation as may be reasonable having regard to

the nature of the goods and other circumstances of the case; and

(b) obtain and promptly deliver or tender in due form any document

necessary to enable the buyer to obtain possession of the goods or

otherwise required by the agreement or by usage of trade; and

(c) promptly notify the buyer of the shipment.

Failure to notify the buyer under paragraph (c) or to make a proper

contract under paragraph (a) is a ground for rejection only if material

delay or loss ensues.

Section 2--505. Seller's Shipment Under Reservation.

(1) Where the seller has identified goods to the contract by or before

shipment:

(a) his procurement of a negotiable bill of lading to his own

order or otherwise reserves in him a security interest in the

goods. His procurement of the bill to the order of a

financing agency or of the buyer indicates in addition only

the seller's expectation of transferring that interest to the

person named.

(b) a non-negotiable bill of lading to himself or his nominee

reserves possession of the goods as security but except in a

case of conditional delivery (subsection (2) of Section

2--507) a non-negotiable bill of lading naming the buyer as

consignee reserves no security interest even though the

seller retains possession or control of the bill of lading.

(2) When shipment by the seller with reservation of a security

interest is in violation of the contract for sale it constitutes an

improper contract for transportation within the preceding section but

impairs neither the rights given to the buyer by shipment and

identification of the goods to the contract nor the seller's powers as a

holder of a negotiable document of title.

Section 2--506. Rights of Financing Agency.

(1) A financing agency by paying or purchasing for value a draft which

relates to a shipment of goods acquires to the extent of the payment or

purchase and in addition to its own rights under the draft and any

document of title securing it any rights of the shipper in the goods

including the right to stop delivery and the shipper's right to have the

draft honored by the buyer.

(2) The right to reimbursement of a financing agency which has in good

faith honored or purchased the draft under commitment to or authority

from the buyer is not impaired by subsequent discovery of defects with

reference to any relevant document which was apparently regular.

Section 2--507. Effect of Seller's Tender; Delivery on Condition.

(1) Tender of delivery is a condition to the buyer's duty to accept

the goods and, unless otherwise agreed, to his duty to pay for them.

Tender entitles the seller to acceptance of the goods and to payment

according to the contract.

(2) Where payment is due and demanded on the delivery to the buyer of

goods or documents of title, his right as against the seller to retain

or dispose of them is conditional upon his making the payment due.

Section 2--508. Cure by Seller of Improper Tender or Delivery;

Replacement.

(1) Where any tender or delivery by the seller is rejected because

non-conforming and the time for performance has not yet expired, the

seller may seasonably notify the buyer of his intention to cure and may

then within the contract time make a conforming delivery.

(2) Where the buyer rejects a non-conforming tender which the seller

had reasonable grounds to believe would be acceptable with or without

money allowance the seller may if he seasonably notifies the buyer have

a further reasonable time to substitute a conforming tender.

Section 2--509. Risk of Loss in the Absence of Breach.

(1) Where the contract requires or authorizes the seller to ship the

goods by carrier

(a) if it does not require him to deliver them at a particular

destination, the risk of loss passes to the buyer when the

goods are duly delivered to the carrier even though the

shipment is under reservation (Section 2--505); but

(b) if it does require him to deliver them at a particular

destination and the goods are there duly tendered while in

the possession of the carrier, the risk of loss passes to the

buyer when the goods are there duly so tendered as to enable

the buyer to take delivery.

(2) Where the goods are held by a bailee to be delivered without being

moved, the risk of loss passes to the buyer

(a) on his receipt of possession or control of a negotiable

document of title covering the goods; or

(b) on acknowledgment by the bailee of the buyer's right to

possession of the goods; or

(c) after his receipt of possession or control of a

non-negotiable document of title or other direction to

deliver in a record, as provided in subsection (4) (b) of

Section 2--503.

(3) In any case not within subsection (1) or (2), the risk of loss

passes to the buyer on his receipt of the goods if the seller is a

merchant; otherwise the risk passes to the buyer on tender of delivery.

(4) The provisions of this section are subject to contrary agreement

of the parties and to the provisions of this Article on sale on approval

(Section 2--327) and on effect of breach on risk of loss (Section

2--510).

Section 2--510. Effect of Breach on Risk of Loss.

(1) Where a tender or delivery of goods so fails to conform to the

contract as to give a right of rejection the risk of their loss remains

on the seller until cure or acceptance.

(2) Where the buyer rightfully revokes acceptance he may to the extent

of any deficiency in his effective insurance coverage treat the risk of

loss as having rested on the seller from the beginning.

(3) Where the buyer as to conforming goods already identified to the

contract for sale repudiates or is otherwise in breach before risk of

their loss has passed to him, the seller may to the extent of any

deficiency in his effective insurance coverage treat the risk of loss as

resting on the buyer for a commercially reasonable time.

Section 2--511. Tender of Payment by Buyer; Payment by Check.

(1) Unless otherwise agreed tender of payment is a condition to the

seller's duty to tender and complete any delivery.

(2) Tender of payment is sufficient when made by any means or in any

manner current in the ordinary course of business unless the seller

demands payment in legal tender and gives any extension of time

reasonably necessary to procure it.

(3) Subject to the provisions of this Act on the effect of an

instrument on an obligation (Section 3--802), payment by check is

conditional and is defeated as between the parties by dishonor of the

check on due presentment.

Section 2--512. Payment by Buyer Before Inspection.

(1) Where the contract requires payment before inspection

non-conformity of the goods does not excuse the buyer from so making

payment unless

(a) the non-conformity appears without inspection; or

(b) despite tender of the required documents the circumstances

would justify injunction against honor under this Code (Section

5--109(b)).

(2) Payment pursuant to subsection (1) does not constitute an

acceptance of goods or impair the buyer's right to inspect or any of his

remedies.

Section 2--513. Buyer's Right to Inspection of Goods.

(1) Unless otherwise agreed and subject to subsection (3), where goods

are tendered or delivered or identified to the contract for sale, the

buyer has a right before payment or acceptance to inspect them at any

reasonable place and time and in any reasonable manner. When the seller

is required or authorized to send the goods to the buyer, the inspection

may be after their arrival.

(2) Expenses of inspection must be borne by the buyer but may be

recovered from the seller if the goods do not conform and are rejected.

(3) Unless otherwise agreed and subject to the provisions of this

Article on C.I.F. contracts (subsection (3) of Section 2--321), the

buyer is not entitled to inspect the goods before payment of the price

when the contract provides

(a) for delivery "C.O.D." or on other like terms; or

(b) for payment against documents of title, except where such

payment is due only after the goods are to become available

for inspection.

(4) A place or method of inspection fixed by the parties is presumed

to be exclusive but unless otherwise expressly agreed it does not

postpone identification or shift the place for delivery or for passing

the risk of loss. If compliance becomes impossible, inspection shall be

as provided in this section unless the place or method fixed was clearly

intended as an indispensable condition failure of which avoids the

contract.

Section 2--514. When Documents Deliverable on Acceptance; When on

Payment.

Unless otherwise agreed documents against which a draft is drawn are

to be delivered to the drawee on acceptance of the draft if it is

payable more than three days after presentment; otherwise, only on

payment.

Section 2--515. Preserving Evidence of Goods in Dispute.

In furtherance of the adjustment of any claim or dispute

(a) either party on reasonable notification to the other and for the

purpose of ascertaining the facts and preserving evidence has the right

to inspect, test and sample the goods including such of them as may be

in the possession or control of the other; and

(b) the parties may agree to a third party inspection or survey to

determine the conformity or condition of the goods and may agree that

the findings shall be binding upon them in any subsequent litigation or

adjustment.

Section 2--601. Buyer's Rights on Improper Delivery.

Subject to the provisions of this Article on breach in installment

contracts (Section 2--612) and unless otherwise agreed under the

sections on contractual limitations of remedy (Sections 2--718 and

2--719), if the goods or the tender of delivery fail in any respect to

conform to the contract, the buyer may

(a) reject the whole; or

(b) accept the whole; or

(c) accept any commercial unit or units and reject the rest.

Section 2--602. Manner and Effect of Rightful Rejection.

(1) Rejection of goods must be within a reasonable time after their

delivery or tender. It is ineffective unless the buyer seasonably

notifies the seller.

(2) Subject to the provisions of the two following sections on

rejected goods (Sections 2--603 and 2--604).

(a) after rejection any exercise of ownership by the buyer with

respect to any commercial unit is wrongful as against the

seller; and

(b) if the buyer has before rejection taken physical possession

of goods in which he does not have a security interest under

the provisions of this Article (subsection (3) of Section

2--711), he is under a duty after rejection to hold them with

reasonable care at the seller's disposition for a time

sufficient to permit the seller to remove them; but

(c) the buyer has no further obligations with regard to goods

rightfully rejected.

(3) The seller's rights with respect to goods wrongfully rejected are

governed by the provisions of this Article on seller's remedies in

general (Section 2--703).

Section 2--603. Merchant Buyer's Duties as to Rightfully Rejected Goods.

(1) Subject to any security interest in the buyer (subsection (3) of

Section 2--711), when the seller has no agent or place of business at

the market of rejection a merchant buyer is under a duty after rejection

of goods in his possession or control to follow any reasonable

instructions received from the seller with respect to the goods and in

the absence of such instructions to make reasonable efforts to sell them

for the seller's account if they are perishable or threaten to decline

in value speedily. Instructions are not reasonable if on demand

indemnity for expenses is not forthcoming.

(2) When the buyer sells goods under subsection (1), he is entitled to

reimbursement from the seller or out of the proceeds for reasonable

expenses of caring for and selling them, and if the expenses include no

selling commission then to such commission as is usual in the trade or

if there is none to a reasonable sum not exceeding ten per cent on the

gross proceeds.

(3) In complying with this section the buyer is held only to good

faith and good faith conduct hereunder is neither acceptance nor

conversion nor the basis of an action for damages.

Section 2--604. Buyer's Options as to Salvage of Rightfully Rejected

Goods.

Subject to the provisions of the immediately preceding section on

perishables if the seller gives no instructions within a reasonable time

after notification of rejection the buyer may store the rejected goods

for the seller's account or reship them to him or resell them for the

seller's account with reimbursement as provided in the preceding

section. Such action is not acceptance or conversion.

Section 2--605. Waiver of Buyer's Objections by Failure to

Particularize.

(1) The buyer's failure to state in connection with rejection a

particular defect which is ascertainable by reasonable inspection

precludes him from relying on the unstated defect to justify rejection

or to establish breach

(a) where the seller could have cured it if stated seasonably; or

(b) between merchants when the seller has after rejection made a

request in writing for a full and final written statement of

all defects on which the buyer proposes to rely.

(2) Payment against documents made without reservation of rights

precludes recovery of the payment for defects apparent in the documents.

Section 2--606. What Constitutes Acceptance of Goods.

(1) Acceptance of goods occurs when the buyer

(a) after a reasonable opportunity to inspect the goods signifies

to the seller that the goods are conforming or that he will

take or retain them in spite of their non-conformity; or

(b) fails to make an effective rejection (subsection (1) of

Section 2--602), but such acceptance does not occur until the

buyer has had a reasonable opportunity to inspect them; or

(c) does any act inconsistent with the seller's ownership; but if

such act is wrongful as against the seller it is an

acceptance only if ratified by him.

(2) Acceptance of a part of any commercial unit is acceptance of that

entire unit.

Section 2--607. Effect of Acceptance; Notice of Breach; Burden of

Establishing Breach After Acceptance; Notice of Claim

or Litigation to Person Answerable Over.

(1) The buyer must pay at the contract rate for any goods accepted.

(2) Acceptance of goods by the buyer precludes rejection of the goods

accepted and if made with knowledge of a non-conformity cannot be

revoked because of it unless the acceptance was on the reasonable

assumption that the non-conformity would be seasonably cured but

acceptance does not of itself impair any other remedy provided by this

Article for non-conformity.

(3) Where a tender has been accepted

(a) the buyer must within a reasonable time after he discovers or

should have discovered any breach notify the seller of breach

or be barred from any remedy; and

(b) if the claim is one for infringement or the like (subsection

(3) of Section 2--312) and the buyer is sued as a result of

such a breach he must so notify the seller within a

reasonable time after he receives notice of the litigation or

be barred from any remedy over for liability established by

the litigation.

(4) The burden is on the buyer to establish any breach with respect to

the goods accepted.

(5) Where the buyer is sued for breach of a warranty or other

obligation for which his seller is answerable over

(a) he may give his seller written notice of the litigation. If

the notice states that the seller may come in and defend and

that if the seller does not do so he will be bound in any

action against him by his buyer by any determination of fact

common to the two litigations, then unless the seller after

seasonable receipt of the notice does come in and defend he

is so bound.

(b) if the claim is one for infringement or the like (subsection

(3) of Section 2--312) the original seller may demand in

writing that his buyer turn over to him control of the

litigation including settlement or else be barred from any

remedy over and if he also agrees to bear all expense and to

satisfy any adverse judgment, then unless the buyer after

seasonable receipt of the demand does turn over control the

buyer is so barred.

(6) The provisions of subsections (3), (4) and (5) apply to any

obligation of a buyer to hold the seller harmless against infringement

or the like (subsection (3) of Section 2--312).

Section 2--608. Revocation of Acceptance in Whole or in Part.

(1) The buyer may revoke his acceptance of a lot or commercial unit

whose non-conformity substantially impairs its value to him if he has

accepted it

(a) on the reasonable assumption that its non-conformity would be

cured and it has not been seasonably cured; or

(b) without discovery of such non-conformity if his acceptance

was reasonably induced either by the difficulty of discovery

before acceptance or by the seller's assurances.

(2) Revocation of acceptance must occur within a reasonable time after

the buyer discovers or should have discovered the ground for it and

before any substantial change in condition of the goods which is not

caused by their own defects. It is not effective until the buyer

notifies the seller of it.

(3) A buyer who so revokes has the same rights and duties with regard

to the goods involved as if he had rejected them.

Section 2--609. Right to Adequate Assurance of Performance.

(1) A contract for sale imposes an obligation on each party that the

other's expectation of receiving due performance will not be impaired.

When reasonable grounds for insecurity arise with respect to the

performance of either party the other may in writing demand adequate

assurance of due performance and until he receives such assurance may if

commercially reasonable suspend any performance for which he has not

already received the agreed return.

(2) Between merchants the reasonableness of grounds for insecurity and

the adequacy of any assurance offered shall be determined according to

commercial standards.

(3) Acceptance of any improper delivery or payment does not prejudice

the aggrieved party's right to demand adequate assurance of future

performance.

(4) After receipt of a justified demand failure to provide within a

reasonable time not exceeding thirty days such assurance of due

performance as is adequate under the circumstances of the particular

case is a repudiation of the contract.

Section 2--610. Anticipatory Repudiation.

When either party repudiates the contract with respect to a

performance not yet due the loss of which will substantially impair the

value of the contract to the other, the aggrieved party may

(a) for a commercially reasonable time await performance by the

repudiating party; or

(b) resort to any remedy for breach (Section 2--703 or Section

2--711), even though he has notified the repudiating party that he would

await the latter's performance and has urged retraction; and

(c) in either case suspend his own performance or proceed in

accordance with the provisions of this Article on the seller's right to

identify goods to the contract notwithstanding breach or to salvage

unfinished goods (Section 2--704).

Section 2--611. Retraction of Anticipatory Repudiation.

(1) Until the repudiating party's next performance is due he can

retract his repudiation unless the aggrieved party has since the

repudiation cancelled or materially changed his position or otherwise

indicated that he considers the repudiation final.

(2) Retraction may be by any method which clearly indicates to the

aggrieved party that the repudiating party intends to perform, but must

include any assurance justifiably demanded under the provisions of this

Article (Section 2--609).

(3) Retraction reinstates the repudiating party's rights under the

contract with due excuse and allowance to the aggrieved party for any

delay occasioned by the repudiation.

Section 2--612. "Installment Contract"; Breach.

(1) An "installment contract" is one which requires or authorizes the

delivery of goods in separate lots to be separately accepted, even

though the contract contains a clause "each delivery is a separate

contract" or its equivalent.

(2) The buyer may reject any installment which is non-conforming if

the non-conformity substantially impairs the value of that installment

and cannot be cured or if the non-conformity is a defect in the required

documents; but if the non-conformity does not fall within subsection (3)

and the seller gives adequate assurance of its cure the buyer must

accept that installment.

(3) Whenever non-conformity or default with respect to one or more

installments substantially impairs the value of the whole contract there

is a breach of the whole. But the aggrieved party reinstates the

contract if he accepts a non-conforming installment without seasonably

notifying of cancellation or if he brings an action with respect only to

past installments or demands performance as to future installments.

Section 2--613. Casualty to Identified Goods.

Where the contract requires for its performance goods identified when

the contract is made, and the goods suffer casualty without fault of

either party before the risk of loss passes to the buyer, or in a proper

case under a "no arrival, no sale" term (Section 2--324) then

(a) if the loss is total the contract is avoided; and

(b) if the loss is partial or the goods have so deteriorated as no

longer to conform to the contract the buyer may nevertheless demand

inspection and at his option either treat the contract as avoided or

accept the goods with due allowance from the contract price for the

deterioration or the deficiency in quantity but without further right

against the seller.

Section 2--614. Substituted Performance.

(1) Where without fault of either party the agreed berthing, loading,

or unloading facilities fail or an agreed type of carrier becomes

unavailable or the agreed manner of delivery otherwise becomes

commercially impracticable but a commercially reasonable substitute is

available, such substitute performance must be tendered and accepted.

(2) If the agreed means or manner of payment fails because of domestic

or foreign governmental regulation, the seller may withhold or stop

delivery unless the buyer provides a means or manner of payment which is

commercially a substantial equivalent. If delivery has already been

taken, payment by the means or in the manner provided by the regulation

discharges the buyer's obligation unless the regulation is

discriminatory, oppressive or predatory.

Section 2--615. Excuse by Failure of Presupposed Conditions.

Except so far as a seller may have assumed a greater obligation and

subject to the preceding section on substituted performance:

(a) Delay in delivery or non-delivery in whole or in part by a seller

who complies with paragraphs (b) and (c) is not a breach of his duty

under a contract for sale if performance as agreed has been made

impracticable by the occurrence of a contingency the non-occurrence of

which was a basic assumption on which the contract was made or by

compliance in good faith with any applicable foreign or domestic

governmental regulation or order whether or not it later proves to be

invalid.

(b) Where the causes mentioned in paragraph (a) affect only a part of

the seller's capacity to perform, he must allocate production and

deliveries among his customers but may at his option include regular

customers not then under contract as well as his own requirements for

further manufacture. He may so allocate in any manner which is fair and

reasonable.

(c) The seller must notify the buyer seasonably that there will be

delay or non-delivery and, when allocation is required under paragraph

(b), of the estimated quota thus made available for the buyer.

Section 2--616. Procedure on Notice Claiming Excuse.

(1) Where the buyer receives notification of a material or indefinite

delay or an allocation justified under the preceding section he may by

written notification to the seller as to any delivery concerned, and

where the prospective deficiency substantially impairs the value of the

whole contract under the provisions of this Article relating to breach

of installment contracts (Section 2--612), then also as to the whole,

(a) terminate and thereby discharge any unexecuted portion of the

contract; or

(b) modify the contract by agreeing to take his available quota

in substitution.

(2) If after receipt of such notification from the seller the buyer

fails so to modify the contract within a reasonable time not exceeding

thirty days the contract lapses with respect to any deliveries affected.

(3) The provisions of this section may not be negated by agreement

except in so far as the seller has assumed a greater obligation under

the preceding section.

Section 2--701. Remedies for Breach of Collateral Contracts Not

Impaired.

Remedies for breach of any obligation or promise collateral or

ancillary to a contract for sale are not impaired by the provisions of

this Article.

Section 2--702. Seller's Remedies on Discovery of Buyer's Insolvency.

(1) Where the seller discovers the buyer to be insolvent he may refuse

delivery except for cash including payment for all goods theretofore

delivered under the contract, and stop delivery under this Article

(Section 2--705).

(2) Where the seller discovers that the buyer has received goods on

credit while insolvent he may reclaim the goods upon demand made within

ten days after the receipt, but if misrepresentation of solvency has

been made to the particular seller in writing within three months before

delivery the ten day limitation does not apply. Except as provided in

this subsection the seller may not base a right to reclaim goods on the

buyer's fraudulent or innocent misrepresentation of solvency or of

intent to pay.

(3) The seller's right to reclaim under subsection (2) is subject to

the rights of a buyer in ordinary course or other good faith purchaser

under this Article (Section 2--403). Successful reclamation of goods

excludes all other remedies with respect to them.

Section 2--703. Seller's Remedies in General.

Where the buyer wrongfully rejects or revokes acceptance of goods or

fails to make a payment due on or before delivery or repudiates with

respect to a part or the whole, then with respect to any goods directly

affected and, if the breach is of the whole contract (Section 2--612),

then also with respect to the whole undelivered balance, the aggrieved

seller may

(a) withhold delivery of such goods;

(b) stop delivery by any bailee as hereafter provided (Section

2--705);

(c) proceed under the next section respecting goods still unidentified

to the contract;

(d) resell and recover damages as hereafter provided (Section

2--706);

(e) recover damages for non-acceptance (Section 2--708) or in a proper

case the price (Section 2--709);

(f) cancel.

Section 2--704. Seller's Right to Identify Goods to the Contract

Notwithstanding Breach or to Salvage Unfinished Goods.

(1) An aggrieved seller under the preceding section may

(a) identify to the contract conforming goods not already

identified if at the time he learned of the breach they are

in his possession or control;

(b) treat as the subject of resale goods which have demonstrably

been intended for the particular contract even though those

goods are unfinished.

(2) Where the goods are unfinished an aggrieved seller may in the

exercise of reasonable commercial judgment for the purposes of avoiding

loss and of effective realization either complete the manufacture and

wholly identify the goods to the contract or cease manufacture and

resell for scrap or salvage value or proceed in any other reasonable

manner.

Section 2--705. Seller's Stoppage of Delivery in Transit or Otherwise.

(1) The seller may stop delivery of goods in the possession of a

carrier or other bailee when he discovers the buyer to be insolvent

(Section 2--702) and may stop delivery of carload, truckload, planeload

or larger shipments of express or freight when the buyer repudiates or

fails to make a payment due before delivery or if for any other reason

the seller has a right to withhold or reclaim the goods.

(2) As against such buyer the seller may stop delivery until

(a) receipt of the goods by the buyer; or

(b) acknowledgment to the buyer by any bailee of the goods except

a carrier that the bailee holds the goods for the buyer; or

(c) such acknowledgment to the buyer by a carrier by reshipment

or as a warehouse; or

(d) negotiation to the buyer of any negotiable document of title

covering the goods.

(3) (a) To stop delivery the seller must so notify as to enable the

bailee by reasonable diligence to prevent delivery of the

goods.

(b) After such notification the bailee must hold and deliver the

goods according to the directions of the seller but the

seller is liable to the bailee for any ensuing charges or

damages.

(c) If a negotiable document of title has been issued for goods

the bailee is not obliged to obey a notification to stop

until surrender of possession or control of the document.

(d) A carrier who has issued a non-negotiable bill of lading is

not obliged to obey a notification to stop received from a

person other than the consignor.

Section 2--706. Seller's Resale Including Contract for Resale.

(1) Under the conditions stated in Section 2--703 on seller's

remedies, the seller may resell the goods concerned or the undelivered

balance thereof. Where the resale is made in good faith and in a

commercially reasonable manner the seller may recover the difference

between the resale price and the contract price together with any

incidental damages allowed under the provisions of this Article (Section

2--710), but less expenses saved in consequence of the buyer's breach.

(2) Except as otherwise provided in subsection (3) or unless otherwise

agreed resale may be at public or private sale including sale by way of

one or more contracts to sell or of identification to an existing

contract of the seller. Sale may be as a unit or in parcels and at any

time and place and on any terms but every aspect of the sale including

the method, manner, time, place and terms must be commercially

reasonable. The resale must be reasonably identified as referring to the

broken contract, but it is not necessary that the goods be in existence

or that any or all of them have been identified to the contract before

the breach.

(3) Where the resale is at private sale the seller must give the buyer

reasonable notification of his intention to resell.

(4) Where the resale is at public sale

(a) only identified goods can be sold except where there is a

recognized market for a public sale of futures in goods of

the kind; and

(b) it must be made at a usual place or market for public sale if

one is reasonably available and except in the case of goods

which are perishable or threaten to decline in value speedily

the seller must give the buyer reasonable notice of the time

and place of the resale; and

(c) if the goods are not to be within the view of those attending

the sale the notification of sale must state the place where

the goods are located and provide for their reasonable

inspection by prospective bidders; and

(d) the seller may buy.

(5) A purchaser who buys in good faith at a resale takes the goods

free of any rights of the original buyer even though the seller fails to

comply with one or more of the requirements of this section.

(6) The seller is not accountable to the buyer for any profit made on

any resale. A person in the position of a seller (Section 2--707) or a

buyer who has rightfully rejected or justifiably revoked acceptance must

account for any excess over the amount of his security interest, as

hereinafter defined (subsection (3) of Section 2--711).

Section 2--707. "Person in the Position of a Seller".

(1) A "person in the position of a seller" includes as against a

principal an agent who has paid or become responsible for the price of

goods on behalf of his principal or anyone who otherwise holds a

security interest or other right in goods similar to that of a seller.

(2) A person in the position of a seller may as provided in this

Article withhold or stop delivery (Section 2--705) and resell (Section

2--706) and recover incidental damages (Section 2--710).

Section 2--708. Seller's Damages for Non-acceptance or Repudiation.

(1) Subject to subsection (2) and to the provisions of this Article

with respect to proof of market price (Section 2--723), the measure of

damages for non-acceptance or repudiation by the buyer is the difference

between the market price at the time and place for tender and the unpaid

contract price together with any incidental damages provided in this

Article (Section 2--710), but less expenses saved in consequence of the

buyer's breach.

(2) If the measure of damages provided in subsection (1) is inadequate

to put the seller in as good a position as performance would have done

then the measure of damages is the profit (including reasonable

overhead) which the seller would have made from full performance by the

buyer, together with any incidental damages provided in this Article

(Section 2--710), due allowance for costs reasonably incurred and due

credit for payments or proceeds of resale.

Section 2--709. Action for the Price.

(1) When the buyer fails to pay the price as it becomes due the seller

may recover, together with any incidental damages under the next

section, the price

(a) of goods accepted or of conforming goods lost or damaged

within a commercially reasonable time after risk of their

loss has passed to the buyer; and

(b) of goods identified to the contract if the seller is unable

after reasonable effort to resell them at a reasonable price

or the circumstances reasonably indicate that such effort

will be unavailing.

(2) Where the seller sues for the price he must hold for the buyer any

goods which have been identified to the contract and are still in his

control except that if resale becomes possible he may resell them at any

time prior to the collection of the judgment. The net proceeds of any

such resale must be credited to the buyer and payment of the judgment

entitles him to any goods not resold.

(3) After the buyer has wrongfully rejected or revoked acceptance of

the goods or has failed to make a payment due or has repudiated (Section

2--610), a seller who is held not entitled to the price under this

section shall nevertheless be awarded damages for non-acceptance under

the preceding section.

Section 2--710. Seller's Incidental Damages.

Incidental damages to an aggrieved seller include any commercially

reasonable charges, expenses or commissions incurred in stopping

delivery, in the transportation, care and custody of goods after the

buyer's breach, in connection with return or resale of the goods or

otherwise resulting from the breach.

Section 2--711. Buyer's Remedies in General; Buyer's Security Interest

in Rejected Goods.

(1) Where the seller fails to make delivery or repudiates or the buyer

rightfully rejects or justifiably revokes acceptance then with respect

to any goods involved, and with respect to the whole if the breach goes

to the whole contract (Section 2--612), the buyer may cancel and whether

or not he has done so may in addition to recovering so much of the price

as has been paid

(a) "cover" and have damages under the next section as to all the

goods affected whether or not they have been identified to

the contract; or

(b) recover damages for non-delivery as provided in this Article

(Section 2--713).

(2) Where the seller fails to deliver or repudiates the buyer may also

(a) if the goods have been identified recover them as provided in

this Article (Section 2--502); or

(b) in a proper case obtain specific performance or replevy the

goods as provided in this Article (Section 2--716).

(3) On rightful rejection or justifiable revocation of acceptance a

buyer has a security interest in goods in his possession or control for

any payments made on their price and any expenses reasonably incurred in

their inspection, receipt, transportation, care and custody and may hold

such goods and resell them in like manner as an aggrieved seller

(Section 2--706).

Section 2--712. "Cover"; Buyer's Procurement of Substitute Goods.

(1) After a breach within the preceding section the buyer may "cover"

by making in good faith and without unreasonable delay any reasonable

purchase of or contract to purchase goods in substitution for those due

from the seller.

(2) The buyer may recover from the seller as damages the difference

between the cost of cover and the contract price together with any

incidental or consequential damages as hereinafter defined (Section

2--715), but less expenses saved in consequence of the seller's breach.

(3) Failure of the buyer to effect cover within this section does not

bar him from any other remedy.

Section 2--713. Buyer's Damages for Non-Delivery or Repudiation.

(1) Subject to the provisions of this Article with respect to proof of

market price (Section 2--723), the measure of damages for non-delivery

or repudiation by the seller is the difference between the market price

at the time when the buyer learned of the breach and the contract price

together with any incidental and consequential damages provided in this

Article (Section 2--715), but less expenses saved in consequence of the

seller's breach.

(2) Market price is to be determined as of the place for tender or, in

cases of rejection after arrival or revocation of acceptance, as of the

place of arrival.

Section 2--714. Buyer's Damages for Breach in Regard to Accepted Goods.

(1) Where the buyer has accepted goods and given notification

(subsection (3) of Section 2--607) he may recover as damages for any

non-conformity of tender the loss resulting in the ordinary course of

events from the seller's breach as determined in any manner which is

reasonable.

(2) The measure of damages for breach of warranty is the difference at

the time and place of acceptance between the value of the goods accepted

and the value they would have had if they had been as warranted, unless

special circumstances show proximate damages of a different amount.

(3) In a proper case any incidental and consequential damages under

the next section may also be recovered.

Section 2--715. Buyer's Incidental and Consequential Damages.

(1) Incidental damages resulting from the seller's breach include

expenses reasonably incurred in inspection, receipt, transportation and

care and custody of goods rightfully rejected, any commercially

reasonable charges, expenses or commissions in connection with effecting

cover and any other reasonable expense incident to the delay or other

breach.

(2) Consequential damages resulting from the seller's breach include

(a) any loss resulting from general or particular requirements

and needs of which the seller at the time of contracting had

reason to know and which could not reasonably be prevented by

cover or otherwise; and

(b) injury to person or property proximately resulting from any

breach of warranty.

Section 2--716. Buyer's Right to Specific Performance or Replevin.

(1) Specific performance may be decreed where the goods are unique or

in other proper circumstances.

(2) The decree for specific performance may include such terms and

conditions as to payment of the price, damages, or other relief as the

court may deem just.

(3) The buyer has a right of replevin for goods identified to the

contract if after reasonable effort he is unable to effect cover for

such goods or the circumstances reasonably indicate that such effort

will be unavailing or if the goods have been shipped under reservation

and satisfaction of the security interest in them has been made or

tendered. In the case of goods bought for personal, family or household

purposes, the buyer's right of replevin vests upon acquisition of a

special property, even if the seller had not then repudiated or failed

to deliver.

Section 2--717. Deduction of Damages From the Price.

The buyer on notifying the seller of his intention to do so may deduct

all or any part of the damages resulting from any breach of the contract

from any part of the price still due under the same contract.

Section 2--718. Liquidation or Limitation of Damages; Deposits.

(1) Damages for breach by either party may be liquidated in the

agreement but only at an amount which is reasonable in the light of the

anticipated or actual harm caused by the breach, the difficulties of

proof of loss, and the inconvenience or nonfeasibility of otherwise

obtaining an adequate remedy. A term fixing unreasonably large

liquidated damages is void as a penalty.

(2) Where the seller justifiably withholds delivery of goods because

of the buyer's breach, the buyer is entitled to restitution of any

amount by which the sum of his payments exceeds

(a) the amount to which the seller is entitled by virtue of terms

liquidating the seller's damages in accordance with

subsection (1), or

(b) in the absence of such terms, twenty per cent of the value of

the total performance for which the buyer is obligated under

the contract or $500, whichever is smaller.

(3) The buyer's right to restitution under subsection (2) is subject

to offset to the extent that the seller establishes

(a) a right to recover damages under the provisions of this

Article other than subsection (1), and

(b) the amount or value of any benefits received by the buyer

directly or indirectly by reason of the contract.

(4) Where a seller has received payment in goods their reasonable

value or the proceeds of their resale shall be treated as payments for

the purposes of subsection (2); but if the seller has notice of the

buyer's breach before reselling goods received in part performance, his

resale is subject to the conditions laid down in this Article on resale

by an aggrieved seller (Section 2--706).

Section 2--719. Contractual Modification or Limitation of Remedy.

(1) Subject to the provisions of subsections (2) and (3) of this

section and of the preceding section on liquidation and limitation of

damages,

(a) the agreement may provide for remedies in addition to or in

substitution for those provided in this Article and may limit

or alter the measure of damages recoverable under this

Article, as by limiting the buyer's remedies to return of the

goods and repayment of the price or to repair and replacement

of non-conforming goods or parts; and

(b) resort to a remedy as provided is optional unless the remedy

is expressly agreed to be exclusive, in which case it is the

sole remedy.

(2) Where circumstances cause an exclusive or limited remedy to fail

of its essential purpose, remedy may be had as provided in this Act.

(3) Consequential damages may be limited or excluded unless the

limitation or exclusion is unconscionable. Limitation of consequential

damages for injury to the person in the case of consumer goods is prima

facie unconscionable but limitation of damages where the loss is

commercial is not.

Section 2--720. Effect of "Cancellation" or "Rescission" on Claims for

Antecedent Breach.

Unless the contrary intention clearly appears, expressions of

"cancellation" or "rescission" of the contract or the like shall not be

construed as a renunciation or discharge of any claim in damages for an

antecedent breach.

Section 2--721. Remedies for Fraud.

Remedies for material misrepresentation or fraud include all remedies

available under this Article for non-fraudulent breach. Neither

rescission or a claim for rescission of the contract for sale nor

rejection or return of the goods shall bar or be deemed inconsistent

with a claim for damages or other remedy.

Section 2--722. Who Can Sue Third Parties for Injury to Goods.

Where a third party so deals with goods which have been identified to

a contract for sale as to cause actionable injury to a party to that

contract

(a) a right of action against the third party is in either party to

the contract for sale who has title to or a security interest or a

special property or an insurable interest in the goods; and if the goods

have been destroyed or converted a right of action is also in the party

who either bore the risk of loss under the contract for sale or has

since the injury assumed that risk as against the other;

(b) if at the time of the injury the party plaintiff did not bear the

risk of loss as against the other party to the contract for sale and

there is no arrangement between them for disposition of the recovery,

his suit or settlement is, subject to his own interest, as a fiduciary

for the other party to the contract;

(c) either party may with the consent of the other sue for the benefit

of whom it may concern.

Section 2--723. Proof of Market Price: Time and Place.

(1) If an action based on anticipatory repudiation comes to trial

before the time for performance with respect to some or all of the

goods, any damages based on market price (Section 2--708 or Section

2--713) shall be determined according to the price of such goods

prevailing at the time when the aggrieved party learned of the

repudiation.

(2) If evidence of a price prevailing at the times or places described

in this Article is not readily available the price prevailing within any

reasonable time before or after the time described or at any other place

which in commercial judgment or under usage of trade would serve as a

reasonable substitute for the one described may be used, making any

proper allowance for the cost of transporting the goods to or from such

other place.

(3) Evidence of a relevant price prevailing at a time or place other

than the one described in this Article offered by one party is not

admissible unless and until he has given the other party such notice as

the court finds sufficient to prevent unfair surprise.

Section 2--724. Admissibility of Market Quotations.

Whenever the prevailing price or value of any goods regularly bought

and sold in any established commodity market is in issue, reports in

official publications or trade journals or in newspapers or periodicals

of general circulation published as the reports of such market shall be

admissible in evidence. The circumstances of the preparation of such a

report may be shown to affect its weight but not its admissibility.

Section 2--725. Statute of Limitations in Contracts for Sale.

(1) An action for breach of any contract for sale must be commenced

within four years after the cause of action has accrued. By the original

agreement the parties may reduce the period of limitation to not less

than one year but may not extend it.

(2) A cause of action accrues when the breach occurs, regardless of

the aggrieved party's lack of knowledge of the breach. A breach of

warranty occurs when tender of delivery is made, except that where a

warranty explicitly extends to future performance of the goods and

discovery of the breach must await the time of such performance the

cause of action accrues when the breach is or should have been

discovered.

(3) Where an action commenced within the time limited by subsection

(1) is so terminated as to leave available a remedy by another action

for the same breach such other action may be commenced after the

expiration of the time limited and within six months after the

termination of the first action unless the termination resulted from

voluntary discontinuance or from dismissal for failure or neglect to

prosecute.

(4) This section does not alter the law on tolling of the statute of

limitations nor does it apply to causes of action which have accrued

before this Act becomes effective.

Section 2-A-101. Short Title.

This Article shall be known and may be cited as the Uniform Commercial

Code - Leases.

Section 2-A-102. Scope.

(1) This Article applies to any transaction, regardless of form, that

creates a lease and, in the case of a hybrid lease, it applies to the

extent provided in subsection (2).

(2) In a hybrid lease:

(a) if the lease-of-goods aspects do not predominate:

(i) only the provisions of this article which relate primarily to the

lease-of-goods aspects of the transaction apply, and the provisions that

relate primarily to the transaction as a whole do not apply;

(ii) Section 2-A-209 applies if the lease is a finance lease; and

(iii) Section 2-A-407 applies to the promises of the lessee in a

finance lease to the extent the promises are consideration for the right

to possession and use of the leased goods; and

(b) if the lease-of-goods aspects predominate, this Article applies to

the transaction, but does not preclude application in appropriate

circumstances of other law to aspects of the lease which do not relate

to the lease of goods.

Section 2-A-103. Definitions and Index of Definitions.

(1) In this Article unless the context otherwise requires:

(a) "Buyer in ordinary course of business" means a person who in

good faith and without knowledge that the sale to him is in

violation of the ownership rights or security interest or

leasehold interest of a third party in the goods, buys in

ordinary course from a person in the business of selling

goods of that kind but does not include a pawnbroker.

"Buying" may be for cash or by exchange of other property or

on secured or unsecured credit and includes acquiring goods

or documents of title under a preexisting contract for sale

but does not include a transfer in bulk or as security for or

in total or partial satisfaction of a money debt.

(b) "Cancellation" occurs when either party puts an end to the

lease contract for default by the other party.

(c) "Commercial unit" means such a unit of goods as by commercial

usage is a single whole for purposes of lease and division of

which materially impairs its character or value on the market

or in use. A commercial unit may be a single article, as a

machine, or a set of articles, as a suite of furniture, or a

line of machinery, or a quantity, as a gross or carload, or

any other unit treated in use or in the relevant market as a

single whole.

(d) "Conforming goods or performance under a lease contract"

means goods or performance that are in accordance with the

obligations under the lease contract.

(e) "Consumer lease" means a lease that a lessor regularly

engaged in the business of leasing or selling makes to a

lessee who is an individual and who takes under the lease

primarily for personal, family, or household purposes.

(f) "Fault" means wrongful act, omission, breach, or default.

(g) "Finance lease" means a lease with respect to which: (i) the

lessor does not select, manufacture, or supply the goods;

(ii) the lessor acquires the goods or the right to possession

and use of the goods in connection with the lease; and (iii)

one of the following occurs: (A) the lessee receives a copy

of the contract by which the lessor acquired the goods or the

right to possession and use of the goods before signing the

lease contract; (B) the lessee's approval of the contract by

which the lessor acquired the goods or the right to

possession and use of the goods is a condition to

effectiveness of the lease contract; (C) the lessee, before

signing the lease contract, receives an accurate and complete

statement designating the promises and warranties, and any

disclaimers of warranties, limitations or modifications of

remedies, or liquidated damages, including those of any third

party, such as the manufacturer of the goods, provided to the

lessor by the person supplying the goods in connection with

or as part of the contract by which the lessor acquired the

goods or the right to possession and use of the goods; or (D)

if the lease is not a consumer lease, the lessor, before the

lessee signs the lease contract, informs the lessee in

writing (a) of the identity of the person supplying the goods

to the lessor, unless the lessee has selected that person and

directed the lessor to acquire the goods or the right to

possession and use of the goods from that person, (b) that

the lessee is entitled under this Article to the promises and

warranties, including those of any third party, provided to

the lessor by the person supplying the goods in connection

with or as part of the contract by which the lessor acquired

the goods or the right to possession and use of the goods,

and (c) that the lessee may communicate with the person

supplying the goods to the lessor and receive an accurate and

complete statement of those promises and warranties,

including any disclaimers and limitations of them or of

remedies.

(h) "Goods" means all things that are movable at the time of

identification to the lease contract, or are fixtures

(Section 2-A-309), but the term does not include money,

documents, instruments, accounts, chattel paper, general

intangibles, or minerals or the like, including oil and gas,

before extraction. The term also includes the unborn young

of animals.

(h-1) "Hybrid lease" means a single transaction involving a lease

of goods and:

(i) the provision of services;

(ii) a sale of other goods; or

(iii) a sale, lease, or license of property other than goods.

(i) "Installment lease contract" means a lease contract that

authorizes or requires the delivery of goods in separate lots

to be separately accepted, even though the lease contract

contains a clause "each delivery is a separate lease" or its

equivalent.

(j) "Lease" means a transfer of the right to possession and use

of goods for a term in return for consideration, but a sale,

including a sale on approval or a sale or return, or

retention or creation of a security interest is not a lease.

Unless the context clearly indicates otherwise, the term

includes a sublease.

(k) "Lease agreement" means the bargain, with respect to the

lease, of the lessor and the lessee in fact as found in their

language or by implication from other circumstances including

course of dealing or usage of trade or course of performance

as provided in this Article. Unless the context clearly

indicates otherwise, the term includes a sublease agreement.

(l) "Lease contract" means the total legal obligation that

results from the lease agreement as affected by this Article

and any other applicable rules of law. Unless the context

clearly indicates otherwise, the term includes a sublease

contract.

(m) "Leasehold interest" means the interest of the lessor or the

lessee under a lease contract.

(n) "Lessee" means a person who acquires the right to possession

and use of goods under a lease. Unless the context clearly

indicates otherwise, the term includes a sublessee.

(o) "Lessee in ordinary course of business" means a person who in

good faith and without knowledge that the lease to him is in

violation of the ownership rights or security interest or

leasehold interest of a third party in the goods leases in

ordinary course from a person in the business of selling or

leasing goods of that kind but does not include a pawnbroker.

"Leasing" may be for cash or by exchange of other property or

on secured or unsecured credit and includes acquiring goods

or documents of title under a preexisting lease contract but

does not include a transfer in bulk or as security for or in

total or partial satisfaction of a money debt.

(p) "Lessor" means a person who transfers the right to possession

and use of goods under a lease. Unless the context clearly

indicates otherwise, the term includes a sublessor.

(q) "Lessor's residual interest" means the lessor's interest in

the goods after expiration, termination, or cancellation of

the lease contract.

(r) "Lien" means a charge against or interest in goods to secure

payment of a debt or performance of an obligation, but the

term does not include a security interest.

(s) "Lot" means a parcel or a single article that is the subject

matter of a separate lease or delivery, whether or not it is

sufficient to perform the lease contract.

(t) "Merchant lessee" means a lessee that is a merchant with

respect to goods of the kind subject to the lease.

(u) "Present value" means the amount as of a date certain of one

or more sums payable in the future, discounted to the date

certain. The discount is determined by the interest rate

specified by the parties if the rate was not manifestly

unreasonable at the time the transaction was entered into;

otherwise, the discount is determined by a commercially

reasonable rate that takes into account the facts and

circumstances of each case at the time the transaction was

entered into.

(v) "Purchase" includes taking by sale, lease, mortgage, security

interest, pledge, gift, or any other voluntary transaction

creating an interest in goods.

(w) "Sublease" means a lease of goods the right to possession and

use of which was acquired by the lessor as a lessee under an

existing lease.

(x) "Supplier" means a person from whom a lessor buys or leases

goods to be leased under a finance lease.

(y) "Supply contract" means a contract under which a lessor buys

or leases goods to be leased.

(z) "Termination" occurs when either party pursuant to a power

created by agreement or law puts an end to the lease contract

otherwise than for default.

(2) Other definitions applying to this Article and the sections in

which they appear are:

"Accessions". Section 2-A-310(1).

"Construction mortgage". Section 2-A-309(1)(d).

"Encumbrance". Section 2-A-309(1)(e).

"Fixtures". Section 2-A-309(1)(a).

"Fixture filing". Section 2-A-309(1)(b).

"Purchase money lease". Section 2-A-309(1)(c).

(3) The following definitions in other articles apply to this Article:

"Account". Section 9--102(a)(2).

"Between merchants". Section 2--104(3).

"Buyer". Section 2--103(1)(a).

"Chattel paper". Section 9--102(a)(11).

"Consumer goods". Section 9--102(a)(23).

"Document". Section 9--102(a)(30).

"Entrusting". Section 2--403(3).

"General intangible". Section 9--102(a)(42).

"Good faith". Section 2--103(1)(b).

"Instrument". Section 9--102(a)(47).

"Merchant". Section 2--104(1).

"Mortgage". Section 9--102(a)(55).

"Pursuant to commitment". Section 9--102(a)(69).

"Receipt". Section 2--103(1)(c).

"Sale". Section 2--106(1).

"Sale on approval". Section 2--326.

"Sale or return". Section 2--326.

"Seller". Section 2--103(1)(d).

(4) In addition, Article 1 contains general definitions and principles

of construction and interpretation applicable throughout this Article.

Section 2-A-104. Leases Subject to Other Law.

(1) A lease, although subject to this Article, is also subject to any

applicable:

(a) certificate of title statute of this state;

(b) certificate of title statute of another jurisdiction (Section

2-A-105); or

(c) consumer protection law of this state, both decisional and

statutory.

(2) In case of conflict between this Article, other than Sections

2-A-105, 2-A-304(3), and 2-A-305(3), and a statute referred to in

subsection (1), the statute controls. Decisional consumer protection law

may supplement the application of provisions of this Article.

(3) Failure to comply with an applicable law has only the effect

specified therein.

Section 2-A-105. Territorial Application of Article to Goods Covered by

Certificate of Title.

Subject to the provisions of Sections 2-A-304(3) and 2-A-305(3), with

respect to goods covered by a certificate of title issued under a

statute of this state or of another jurisdiction, compliance and the

effect of compliance or noncompliance with a certificate of title

statute are governed by the law (including the conflict of laws rules)

of the jurisdiction issuing the certificate until the earlier of (a)

surrender of the certificate, or (b) four months after the goods are

removed from that jurisdiction and thereafter until a new certificate of

title is issued by another jurisdiction.

Section 2-A-106. Limitation on Power of Parties to Consumer Lease to

Choose Applicable Law and Judicial Forum.

(1) If the law chosen by the parties to a consumer lease is that of a

jurisdiction other than a jurisdiction in which the lessee resides at

the time the lease agreement becomes enforceable or within thirty days

thereafter or in which the goods are to be used, the choice is not

enforceable.

(2) If the judicial forum chosen by the parties to a consumer lease is

a forum that would not otherwise have jurisdiction over the lessee, the

choice is not enforceable.

Section 2-A-107. Waiver or Renunciation of Claim or Right After Default.

Any claim or right arising out of an alleged default or breach of

warranty may be discharged in whole or in part without consideration by

a waiver or renunciation in a signed record delivered by the aggrieved

party.

Section 2-A-108. Unconscionability.

(1) If the court as a matter of law finds a lease contract or any

clause of a lease contract to have been unconscionable at the time it

was made the court may refuse to enforce the lease contract, or it may

enforce the remainder of the lease contract without the unconscionable

clause, or it may so limit the application of any unconscionable clause

as to avoid any unconscionable result.

(2) With respect to a consumer lease, if the court as a matter of law

finds that a lease contract or any clause of a lease contract has been

induced by unconscionable conduct or that unconscionable conduct has

occurred in the collection of a claim arising from a lease contract, the

court may grant appropriate relief.

(3) Before making a finding of unconscionability under subsection (1)

or (2), the court, on its own motion or that of a party, shall afford

the parties a reasonable opportunity to present evidence as to the

setting, purpose, and effect of the lease contract or clause thereof, or

of the conduct.

(4) In an action in which the lessee claims unconscionability with

respect to a consumer lease:

(a) if the court finds unconscionability under subsection (1) or

(2), the court shall award reasonable attorney's fees to the

lessee.

(b) in determining attorney's fees, the amount of recovery on

behalf of the claimant under subsections (1) and (2) is not

controlling.

Section 2-A-109. Option to Accelerate at Will.

(1) A term providing that one party or his or her successor in

interest may accelerate payment or performance or require collateral or

additional collateral "at will" or "when he or she deems himself or

herself insecure" or in words of similar import must be construed to

mean that he or she has power to do so only if he or she in good faith

believes that the prospect of payment or performance is impaired.

(2) With respect to a consumer lease, the burden of establishing good

faith under subsection (1) is on the party who exercised the power;

otherwise the burden of establishing lack of good faith is on the party

against whom the power has been exercised.

Section 2-A-201. Statute of Frauds.

(1) A lease contract is not enforceable by way of action or defense

unless:

(a) the total payments to be made under the lease contract,

excluding payments for options to renew or buy, are less than

$1,000; or

(b) there is a record, signed by the party against whom

enforcement is sought or by that party's authorized agent,

sufficient to indicate that a lease contract has been made

between the parties and to describe the goods leased and the

lease term.

(2) Any description of leased goods or of the lease term is sufficient

and satisfies subsection (1)(b), whether or not it is specific, if it

reasonably identifies what is described.

(3) A record is not insufficient because it omits or incorrectly

states a term agreed upon, but the lease contract is not enforceable

under subsection (1)(b) beyond the lease term and the quantity of goods

shown in the record.

(4) A lease contract that does not satisfy the requirements of

subsection (1), but which is valid in other respects, is enforceable:

(a) if the goods are to be specially manufactured or obtained for

the lessee and are not suitable for lease or sale to others

in the ordinary course of the lessor's business, and the

lessor, before notice of repudiation is received and under

circumstances that reasonably indicate that the goods are for

the lessee, has made either a substantial beginning of their

manufacture or commitments for their procurement;

(b) if the party against whom enforcement is sought admits in

that party's pleading, testimony, or otherwise in court that

a lease contract was made, but the lease contract is not

enforceable under this provision beyond the quantity of goods

admitted; or

(c) with respect to goods that have been received and accepted by

the lessee.

(5) The lease term under a lease contract referred to in subsection

(4) is:

(a) if there is a record signed by the party against whom

enforcement is sought or by that party's authorized agent

specifying the lease term, the term so specified;

(b) if the party against whom enforcement is sought admits in

that party's pleading, testimony, or otherwise in court a

lease term, the term so admitted; or

(c) a reasonable lease term.

(6) A lease contract enforceable under this section shall not be

rendered unenforceable by the operation of New York General Obligations

Law Section 5-701.

Section 2-A-202. Final Written Expression: Parol or Extrinsic Evidence.

Terms with respect to which the confirmatory memoranda of the parties

agree or which are otherwise set forth in a record intended by the

parties as a final expression of their agreement with respect to such

terms as are included therein may not be contradicted by evidence of any

prior agreement or of a contemporaneous oral agreement but may be

explained or supplemented:

(a) by course of dealing or usage of trade or by course of

performance; and

(b) by evidence of consistent additional terms unless the court

finds the record to have been intended also as a complete and

exclusive statement of the terms of the agreement.

Section 2-A-203. Seals Inoperative.

The affixing of a seal to a record evidencing a lease contract or an

offer to enter into a lease contract does not render the record a sealed

instrument and the law with respect to sealed instruments does not apply

to the lease contract or offer.

Section 2-A-204. Formation in General.

(1) A lease contract may be made in any manner sufficient to show

agreement, including conduct by both parties which recognizes the

existence of a lease contract.

(2) An agreement sufficient to constitute a lease contract may be

found although the moment of its making is undetermined.

(3) Although one or more terms are left open, a lease contract does

not fail for indefiniteness if the parties have intended to make a lease

contract and there is a reasonably certain basis for giving an

appropriate remedy.

Section 2-A-205. Firm Offers.

An offer by a merchant to lease goods to or from another person in a

signed record that by its terms gives assurance it will be held open is

not revocable, for lack of consideration, during the time stated or, if

no time is stated, for a reasonable time, but in no event may the period

of irrevocability exceed three months. Any such term of assurance on a

form supplied by the offeree must be separately signed by the offeror.

Section 2-A-206. Offer and Acceptance in Formation of Lease Contract.

(1) Unless otherwise unambiguously indicated by the language or

circumstances, an offer to make a lease contract must be construed as

inviting acceptance in any manner and by any medium reasonable in the

circumstances.

(2) If the beginning of a requested performance is a reasonable mode

of acceptance, an offeror who is not notified of acceptance within a

reasonable time may treat the offer as having lapsed before acceptance.

Section 2-A-208. Modification, Rescission and Waiver.

(1) An agreement modifying a lease contract needs no consideration to

be binding.

(2) A signed lease agreement that excludes modification or rescission

except by a signed record may not be otherwise modified or rescinded,

but, except as between merchants, such a requirement on a form supplied

by a merchant must be separately signed by the other party.

(3) Although an attempt at modification or rescission does not satisfy

the requirements of subsection (2), it may operate as a waiver.

(4) A party who has made a waiver affecting an executory portion of a

lease contract may retract the waiver by reasonable notification

received by the other party that strict performance will be required of

any term waived, unless the retraction would be unjust in view of a

material change of position in reliance on the waiver.

Section 2-A-209. Lessee Under Finance Lease as Beneficiary of Supply

Contract.

(1) The benefit of a supplier's promises to the lessor under the

supply contract and of all warranties, whether express or implied,

including those of any third party provided in connection with or as

part of the supply contract, extends to the lessee to the extent of the

lessee's leasehold interest under a finance lease related to the supply

contract, but is subject to the terms of the warranty and of the supply

contract and all defenses or claims arising therefrom.

(2) The extension of the benefit of a supplier's promises and of

warranties to the lessee under subsection (1) does not: (i) modify the

rights and obligations of the parties to the supply contract, whether

arising therefrom or otherwise, or (ii) impose any duty or liability

under the supply contract on the lessee.

(3) Any modification or rescission of the supply contract by the

supplier and lessor is effective between the supplier and the lessee

unless, before the modification or rescission, the supplier has received

notice that the lessee has entered into a finance lease related to the

supply contract. If the modification or rescission is effective between

the supplier and the lessee, the lessor is deemed to have assumed, in

addition to the obligations of the lessor to the lessee under the lease

contract, promises of the supplier to the lessor and warranties that

were so modified or rescinded as they existed and were available to the

lessee before modification or rescission.

(4) In addition to the extension of the benefit of the supplier's

promises and of warranties to the lessee under subsection (1), the

lessee retains all rights which the lessee may have against the supplier

that arise from any agreement between the lessee and supplier or under

other law.

Section 2-A-210. Express Warranties.

(1) Express warranties by the lessor are created as follows:

(a) any affirmation of fact or promise made by the lessor to the

lessee which relates to the goods and becomes part of the

basis of the bargain creates an express warranty that the

goods will conform to the affirmation or promise.

(b) any description of the goods which is made part of the basis

of the bargain creates an express warranty that the goods

will conform to the description.

(c) any sample or model that is made part of the basis of the

bargain creates an express warranty that the whole of the

goods will conform to the sample or model.

(2) It is not necessary to the creation of an express warranty that

the lessor use formal words, such as "warrant" or "guarantee," or that

the lessor have a specific intention to make a warranty, but an

affirmation merely of the value of the goods or a statement purporting

to be merely the lessor's opinion or commendation of the goods does not

create a warranty.

Section 2-A-211. Warranties Against Interference and Against

Infringement; Lessee's Obligation Against

Infringement.

(1) There is in a lease contract a warranty that for the lease term no

person holds a claim to or interest in the goods that arose from an act

or omission of the lessor, other than a claim by way of infringement or

the like, which will interfere with the lessee's enjoyment of its

leasehold interest.

(2) Except in a finance lease there is in a lease contract by a lessor

who is a merchant regularly dealing in goods of the kind a warranty that

the goods are delivered free of the rightful claim of any person by way

of infringement or the like.

(3) A lessee who furnishes specifications to a lessor or a supplier

shall hold the lessor and the supplier harmless against any claim by way

of infringement or the like that arises out of compliance with the

specifications.

Section 2-A-212. Implied Warranty of Merchantability.

(1) Except in a finance lease, a warranty that the goods will be

merchantable is implied in a lease contract if the lessor is a merchant

with respect to goods of that kind.

(2) Goods to be merchantable must be at least such as:

(a) pass without objection in the trade under the description in

the lease agreement;

(b) in the case of fungible goods, are of fair average quality

within the description;

(c) are fit for the ordinary purposes for which goods of that

type are used;

(d) run, within the variation permitted by the lease agreement,

of even kind, quality, and quantity within each unit and

among all units involved;

(e) are adequately contained, packaged, and labeled as the lease

agreement may require; and

(f) conform to any promises or affirmations of fact made on the

container or label.

(3) Other implied warranties may arise from course of dealing or usage

of trade.

Section 2-A-213. Implied Warranty of Fitness for Particular Purpose.

Except in a finance lease, if the lessor at the time the lease

contract is made has reason to know of any particular purpose for which

the goods are required and that the lessee is relying on the lessor's

skill or judgment to select or furnish suitable goods, there is in the

lease contract an implied warranty that the goods will be fit for that

purpose.

Section 2-A-214. Exclusion or Modification of Warranties.

(1) Words or conduct relevant to the creation of an express warranty

and words or conduct tending to negate or limit a warranty must be

construed wherever reasonable as consistent with each other; but,

subject to the provisions of Section 2-A-202 on parol or extrinsic

evidence, negation or limitation is inoperative to the extent that the

construction is unreasonable.

(2) Subject to subsection (3), to exclude or modify the implied

warranty of merchantability or any part of it the language must mention

"merchantability", be by a writing, and be conspicuous. Subject to

subsection (3), to exclude or modify any implied warranty of fitness the

exclusion must be by a writing and be conspicuous. Language to exclude

all implied warranties of fitness is sufficient if it is in writing, is

conspicuous and states, for example, "there is no warranty that the

goods will be fit for a particular purpose".

(3) Notwithstanding subsection (2), but subject to subsection (4),

(a) unless the circumstances indicate otherwise, all implied

warranties are excluded by expressions like "as is," or "with

all faults," or by other language that in common

understanding calls the lessee's attention to the exclusion

of warranties and makes plain that there is no implied

warranty, if in writing and conspicuous;

(b) if the lessee before entering into the lease contract has

examined the goods or the sample or model as fully as desired

or has refused to examine the goods, there is no implied

warranty with regard to defects that an examination ought in

the circumstances to have revealed; and

(c) an implied warranty may also be excluded or modified by

course of dealing, course of performance, or usage of trade.

(4) To exclude or modify a warranty against interference or against

infringement (Section 2-A-211) or any part of it, the language must be

specific, be by a writing, and be conspicuous, unless the circumstances,

including course of performance, course of dealing, or usage of trade,

give the lessee reason to know that the goods are being leased subject

to a claim or interest of any person.

Section 2-A-215. Cumulation and Conflict of Warranties Express or

Implied.

Warranties, whether express or implied, must be construed as

consistent with each other and as cumulative, but if that construction

is unreasonable, the intention of the parties determines which warranty

is dominant. In ascertaining that intention the following rules apply:

(1) exact or technical specifications displace an inconsistent sample

or model or general language of description.

(2) a sample from an existing bulk displaces inconsistent general

language of description.

(3) express warranties displace inconsistent implied warranties other

than an implied warranty of fitness for a particular purpose.

Section 2-A-216. Third-Party Beneficiaries of Express or Implied

Warranties.

A warranty to or for the benefit of a lessee under this Article,

whether express or implied, extends to any natural person if it is

reasonable to expect that such person may use, consume, or be affected

by the goods and who is injured in person by breach of the warranty.

This section does not displace principles of law and equity that extend

a warranty to or for the benefit of a lessee to other persons. The

operation of this section may not be excluded, modified, or limited, but

an exclusion, modification, or limitation of the warranty, including any

with respect to rights and remedies, effective against the lessee is

also effective against the beneficiary designated under this section.

Section 2-A-217. Identification.

Identification of goods as goods to which a lease contract refers may

be made at any time and in any manner explicitly agreed to by the

parties. In the absence of explicit agreement, identification occurs:

(1) when the lease contract is made if the lease contract is for a

lease of goods that are existing and identified;

(2) when the goods are shipped, marked, or otherwise designated by the

lessor as goods to which the lease contract refers, if the lease

contract is for a lease of goods that are not existing and identified;

or

(3) when the young are conceived, if the lease contract is for a lease

of unborn young of animals.

Section 2-A-218. Insurance and Proceeds.

(1) A lessee obtains an insurable interest when existing goods are

identified to the lease contract even though the goods identified are

nonconforming and the lessee has an option to reject them.

(2) If a lessee has an insurable interest only by reason of the

lessor's identification of the goods, the lessor, until default or

insolvency or notification to the lessee that identification is final,

may substitute other goods for those identified.

(3) Notwithstanding a lessee's insurable interest under subsections

(1) and (2), the lessor retains an insurable interest until an option to

buy has been exercised by the lessee and risk of loss has passed to the

lessee.

(4) Nothing in this section impairs any insurable interest recognized

under any other statute or rule of law.

(5) The parties by agreement may determine that one or more parties

have an obligation to obtain and pay for insurance covering the goods

and by agreement may determine the beneficiary of the proceeds of the

insurance.

Section 2-A-219. Risk of Loss.

(1) Except in the case of a finance lease, risk of loss is retained by

the lessor and does not pass to the lessee. In the case of a finance

lease, risk of loss passes to the lessee.

(2) Subject to the provisions of this Article on the effect of default

on risk of loss (Section 2-A-220), if risk of loss is to pass to the

lessee and the time of passage is not stated, the following rules apply:

(a) if the lease contract requires or authorizes the goods to be

shipped by carrier:

(i) and it does not require delivery at a particular

destination, the risk of loss passes to the lessee when

the goods are duly delivered to the carrier; but

(ii) if it does require delivery at a particular destination

and the goods are there duly tendered while in the

possession of the carrier, the risk of loss passes to the

lessee when the goods are there duly so tendered as to

enable the lessee to take delivery.

(b) if the goods are held by a bailee to be delivered without

being moved, the risk of loss passes to the lessee on

acknowledgment by the bailee of the lessee's right to

possession of the goods.

(c) in any case not within paragraph (a) or (b), the risk of loss

passes to the lessee on the lessee's receipt of the goods if

the lessor, or, in the case of a finance lease, the supplier,

is a merchant; otherwise the risk passes to the lessee on

tender of delivery.

Section 2-A-220. Effect of Default on Risk of Loss.

(1) Where risk of loss is to pass to the lessee and the time of

passage is not stated:

(a) if a tender or delivery of goods so fails to conform to the

lease contract as to give a right of rejection, the risk of

their loss remains with the lessor, or, in the case of a

finance lease, the supplier, until cure or acceptance.

(b) if the lessee rightfully revokes acceptance, he or she, to

the extent of any deficiency in his or her effective

insurance coverage, may treat the risk of loss as having

remained with the lessor from the beginning.

(2) Whether or not risk of loss is to pass to the lessee, if the

lessee as to conforming goods already identified to a lease contract

repudiates or is otherwise in default under the lease contract, the

lessor, or, in the case of a finance lease, the supplier, to the extent

of any deficiency in his or her effective insurance coverage may treat

the risk of loss as resting on the lessee for a commercially reasonable

time.

Section 2-A-221. Casualty to Identified Goods.

If a lease contract requires goods identified when the lease contract

is made, and the goods suffer casualty without fault of the lessee, the

lessor or the supplier before delivery, or the goods suffer casualty

before risk of loss passes to the lessee pursuant to the lease agreement

or Section 2-A-219, then:

(1) if the loss is total, the lease contract is avoided; and

(2) if the loss is partial or the goods have so deteriorated as to no

longer conform to the lease contract, the lessee may nevertheless demand

inspection and at his or her option either treat the lease contract as

avoided or, except in a finance lease that is not a consumer lease,

accept the goods with due allowance from the rent payable for the

balance of the lease term for the deterioration or the deficiency in

quantity but without further right against the lessor.

Section 2-A-301. Enforceability of Lease Contract.

Except as otherwise provided in this Article, a lease contract is

effective and enforceable according to its terms between the parties,

against purchasers of the goods, and against creditors of the parties.

Section 2-A-302. Title to and Possession of Goods.

Except as otherwise provided in this Article, each provision of this

Article applies whether the lessor or a third party has title to the

goods, and whether the lessor, the lessee, or a third party has

possession of the goods, notwithstanding any statute or rule of law that

possession or the absence of possession is fraudulent.

Section 2-A-303. Alienability of Party's Interest Under Lease Contract

or of Lessor's Residual Interest in Goods; Delegation

of Performance; Transfer of Rights.

(1) As used in this section, "creation of a security interest"

includes the sale of a lease contract that is subject to Article 9,

secured transactions, by reason of Section 9--109(a)(3).

(2) Except as provided in subsection (3) and Section 9--407, a

provision in a lease agreement which (i) prohibits the voluntary or

involuntary transfer, including a transfer by sale, sublease, creation

or enforcement of a security interest, or attachment, levy, or other

judicial process, of an interest of a party under the lease contract or

of the lessor's residual interest in the goods, or (ii) makes such a

transfer an event of default, gives rise to the rights and remedies

provided in subsection (4), but a transfer that is prohibited or is an

event of default under the lease agreement is otherwise effective.

(3) A provision in a lease agreement which (i) prohibits a transfer of

a right to damages for default with respect to the whole lease contract

or of a right to payment arising out of the transferor's due performance

of the transferor's entire obligation, or (ii) makes such a transfer an

event of default, is not enforceable, and such a transfer is not a

transfer that materially impairs the prospect of obtaining return

performance by, materially changes the duty of, or materially increases

the burden or risk imposed on, the other party to the lease contract

within the purview of subsection (4).

(4) Subject to subsection (3) and Section 9--407:

(a) if a transfer is made which is made an event of default under

the lease agreement, the party to the lease contract not

making the transfer, unless that party waives the default or

otherwise agrees, has the rights and remedies described in

Section 2-A-501(2);

(b) if paragraph (a) is not applicable and if a transfer is made

that (i) is prohibited under a lease agreement or (ii)

materially impairs the prospect of obtaining return

performance by, materially changes the duty of, or materially

increases the burden or risk imposed on, the other party to

the lease contract, unless the party not making the transfer

agrees at any time to the transfer in the lease contract or

otherwise, then, except as limited by contract, (i) the

transferor is liable to the party not making the transfer for

damages caused by the transfer to the extent that the damages

could not reasonably be prevented by the party not making the

transfer and (ii) a court having jurisdiction may grant other

appropriate relief, including cancellation of the lease

contract or an injunction against the transfer.

(5) A transfer of "the lease" or of "all my rights under the lease",

or a transfer in similar general terms, is a transfer of rights and,

unless the language or the circumstances, as in a transfer for security,

indicate the contrary, the transfer is a delegation of duties by the

transferor to the transferee. Acceptance by the transferee constitutes a

promise by the transferee to perform those duties. The promise is

enforceable by either the transferor or the other party to the lease

contract.

(6) Unless otherwise agreed by the lessor and the lessee, a delegation

of performance does not relieve the transferor as against the other

party of any duty to perform or of any liability for default.

(7) In a consumer lease, to prohibit the transfer of an interest of a

party under the lease contract or to make a transfer an event of

default, the language must be specific, by a writing, and conspicuous.

Section 2-A-304. Subsequent Lease of Goods by Lessor.

(1) Subject to Section 2-A-303, a subsequent lessee from a lessor of

goods under an existing lease contract obtains, to the extent of the

leasehold interest transferred, the leasehold interest in the goods that

the lessor had or had power to transfer, and, except as provided in

subsection (2) and Section 2-A-527(4), takes subject to the existing

lease contract. A lessor with voidable title has power to transfer a

good leasehold interest to a good faith subsequent lessee for value, but

only to the extent set forth in the preceding sentence. If goods have

been delivered under a transaction of purchase, the lessor has that

power even though:

(a) the lessor's transferor was deceived as to the identity of

the lessor;

(b) the delivery was in exchange for a check which is later

dishonored;

(c) it was agreed that the transaction was to be a "cash sale";

or

(d) the delivery was procured through fraud punishable as

larcenous under the criminal law.

(2) A subsequent lessee in the ordinary course of business from a

lessor who is a merchant dealing in goods of that kind to whom the goods

were entrusted by a prior lessee before the interest of the subsequent

lessee became enforceable against that lessor obtains, to the extent of

the leasehold interest transferred, all of that lessor's and the prior

lessee's rights to the goods and takes free of the existing lease

contract.

(3) A subsequent lessee from the lessor of goods that are subject to

an existing lease contract and are covered by a certificate of title

issued under a statute of this state or of another jurisdiction takes no

greater rights than those provided both by this section and by the

certificate of title statute.

Section 2-A-305. Sale or Sublease of Goods by Lessee.

(1) Subject to the provisions of Section 2-A-303, a buyer or sublessee

from the lessee of goods under an existing lease contract obtains, to

the extent of the interest transferred, the leasehold interest in the

goods that the lessee had or had power to transfer, and except as

provided in subsection (2) and Section 2-A-511(4), takes subject to the

existing lease contract. A lessee with a voidable leasehold interest has

power to transfer a good leasehold interest to a good faith buyer for

value or a good faith sublessee for value, but only to the extent set

forth in the preceding sentence. When goods have been delivered under a

transaction of lease the lessee has that power even though:

(a) the lessor was deceived as to the identity of the lessee;

(b) the delivery was in exchange for a check which is later

dishonored; or

(c) the delivery was procured through fraud punishable as

larcenous under the criminal law.

(2) A buyer in the ordinary course of business or a sublessee in the

ordinary course of business from a lessee who is a merchant dealing in

goods of that kind to whom the goods were entrusted by the lessor

obtains, to the extent of the interest transferred, all of the lessor's

and lessee's rights to the goods, and takes free of the existing lease

contract.

(3) A buyer or sublessee from the lessee of goods that are subject to

an existing lease contract and are covered by a certificate of title

issued under a statute of this state or of another jurisdiction takes no

greater rights than those provided both by this section and by the

certificate of title statute.

Section 2-A-306. Priority of Certain Liens Arising by Operation of Law.

If a person in the ordinary course of his or her business furnishes

services or materials with respect to goods subject to a lease contract,

a lien upon those goods in the possession of that person given by

statute or rule of law for those materials or services takes priority

over any interest of the lessor or lessee under the lease contract or

this Article unless the lien is created by statute and the statute

provides otherwise or unless the lien is created by rule of law and the

rule of law provides otherwise.

Section 2-A-307. Priority of Liens Arising by Attachment or Levy on,

Security Interests in, and Other Claims to Goods.

(1) Except as otherwise provided in Section 2-A-306, a creditor of a

lessee takes subject to the lease contract.

(2) Except as otherwise provided in subsection (3) and in Sections

2-A-306 and 2-A-308, a creditor of a lessor takes subject to the lease

contract unless the creditor holds a lien that attached to the goods

before the lease contract became enforceable.

(3) Except as otherwise provided in Sections 9--317, 9--321, and

9--323, a lessee takes a leasehold interest subject to a security

interest held by a creditor of the lessor.

Section 2-A-308. Special Rights of Creditors.

(1) A creditor of a lessor in possession of goods subject to a lease

contract may treat the lease contract as void if as against the creditor

retention of possession by the lessor is fraudulent under any statute or

rule of law, but retention of possession in good faith and current

course of trade by the lessor for a commercially reasonable time after

the lease contract becomes enforceable is not fraudulent.

(2) Nothing in this Article impairs the rights of creditors of a

lessor if the lease contract (a) becomes enforceable, not in current

course of trade but in satisfaction of or as security for a preexisting

claim for money, security, or the like, and (b) is made under

circumstances which under any statute or rule of law apart from this

Article would constitute the transaction a fraudulent transfer or

voidable preference.

(3) A creditor of a seller may treat a sale or an identification of

goods to a contract for sale as void if as against the creditor

retention of possession by the seller is fraudulent under any statute or

rule of law, but retention of possession of the goods pursuant to a

lease contract entered into by the seller as lessee and the buyer as

lessor in connection with the sale or identification of the goods is not

fraudulent if the buyer bought for value and in good faith.

Section 2-A-309. Lessor's and Lessee's Rights When Goods Become

Fixtures.

(1) In this section:

(a) Goods are "fixtures" when they become so related to

particular real estate that an interest in them arises under

real estate law;

(b) A "fixture filing" is the filing, in the office where a

mortgage on the real estate would be filed or recorded, of a

financing statement covering goods that are or are to become

fixtures and conforming to the requirements of Section 9--502

(a) and (b);

(c) A lease is a "purchase money lease" unless the lessee has

possession or use of the goods or the right to possession or

use of the goods before the lease agreement is enforceable;

(d) A mortgage is a "construction mortgage" to the extent it

secures an obligation incurred for the construction of an

improvement on land including the acquisition cost of the

land, if the recorded writing so indicates; and

(e) "Encumbrance" includes real estate mortgages and other liens

on real estate and all other rights in real estate that are

not ownership interests.

(2) Under this Article a lease may be of goods that are fixtures or

may continue in goods that become fixtures, but no lease exists under

this Article of ordinary building materials incorporated into an

improvement on land.

(3) This Article does not prevent creation of a lease of fixtures

pursuant to real estate law.

(4) The perfected interest of a lessor of fixtures has priority over a

conflicting interest of an encumbrancer or owner of the real estate if:

(a) the lease is a purchase money lease, the conflicting interest

of the encumbrancer or owner arises before the goods become

fixtures, the interest of the lessor is perfected by a

fixture filing before the goods become fixtures or within ten

days thereafter, and the lessee has an interest of record in

the real estate or is in possession of the real estate; or

(b) the interest of the lessor is perfected by a fixture filing

before the interest of the encumbrancer or owner is of

record, the lessor's interest has priority over any

conflicting interest of a predecessor in title of the

encumbrancer or owner, and the lessee has an interest of

record in the real estate or is in possession of the real

estate.

(5) The interest of a lessor of fixtures, whether or not perfected,

has priority over the conflicting interest of an encumbrancer or owner

of the real estate if:

(a) the fixtures are readily removable factory or office

machines, readily removable equipment that is not primarily

used or leased for use in the operation of the real estate,

or readily removable replacement of domestic appliances that

are goods subject to a consumer lease, and before the goods

become fixtures the lease contract is enforceable; or

(b) the conflicting interest is a lien on the real estate

obtained by legal or equitable proceedings after the lease

contract is enforceable; or

(c) the encumbrancer or owner has consented in writing to the

lease or has disclaimed an interest in the goods as fixtures;

or

(d) the lessee has a right to remove the goods as against the

encumbrancer or owner. If the lessee's right to remove

terminates, the priority of the interest of the lessor

continues for a reasonable time.

(6) Notwithstanding subsection (4)(a) but otherwise subject to

subsections (4) and (5), the interest of a lessor of fixtures, including

the lessor's residual interest, is subordinate to the conflicting

interest of an encumbrancer of the real estate under a construction

mortgage recorded before the goods become fixtures if the goods become

fixtures before the completion of the construction. To the extent given

to refinance a construction mortgage, the conflicting interest of an

encumbrancer of the real estate under a mortgage has this priority to

the same extent as the encumbrancer of the real estate under the

construction mortgage.

(7) In cases not within the preceding subsections, priority between

the interest of a lessor of fixtures, including the lessor's residual

interest, and the conflicting interest of an encumbrancer or owner of

the real estate who is not the lessee is determined by the priority

rules governing conflicting interests in real estate.

(8) If the interest of a lessor of fixtures, including the lessor's

residual interest, has priority over all conflicting interests of all

owners and encumbrancers of the real estate, the lessor or the lessee

may (i) on default, expiration, termination, or cancellation of the

lease agreement but subject to the lease agreement and this Article, or

(ii) if necessary to enforce other rights and remedies of the lessor or

the lessee under this Article, remove the goods from the real estate,

free and clear of all conflicting interests of all owners and

encumbrancers of the real estate, but the lessor or the lessee must

reimburse any encumbrancer or owner of the real estate who is not the

lessee and who has not otherwise agreed for the cost of repair of any

physical injury, but not for any diminution in value of the real estate

caused by the absence of the goods removed or by any necessity of

replacing them. A person entitled to reimbursement may refuse permission

to remove until the party seeking removal gives adequate security for

the performance of this obligation.

(9) Even though the lease agreement does not create a security

interest, the interest of a lessor of fixtures, including the lessor's

residual interest, is perfected by filing a financing statement as a

fixture filing for leased goods that are or are to become fixtures in

accordance with the relevant provisions of the article on secured

transactions (Article 9).

Section 2-A-310. Lessor's and Lessee's Rights When Goods Become

Accessions.

(1) Goods are "accessions" when they are installed in or affixed to

other goods.

(2) The interest of a lessor or a lessee under a lease contract

entered into before the goods became accessions is superior to all

interests in the whole except as stated in subsection (4).

(3) The interest of a lessor or a lessee under a lease contract

entered into at the time or after the goods became accessions is

superior to all subsequently acquired interests in the whole except as

stated in subsection (4) but is subordinate to interests in the whole

existing at the time the lease contract was made unless the holders of

such interests in the whole have in writing consented to the lease or

disclaimed an interest in the goods as part of the whole.

(4) The interest of a lessor or a lessee under a lease contract

described in subsection (2) or (3) is subordinate to the interest of:

(a) a buyer in the ordinary course of business or a lessee in the

ordinary course of business of any interest in the whole

acquired after the goods became accessions; or

(b) a creditor with a security interest in the whole perfected

before the lease contract was made to the extent that the

creditor makes subsequent advances without knowledge of the

lease contract.

(5) When under subsections (2) or (3) and (4) a lessor or a lessee of

accessions holds an interest that is superior to all interests in the

whole, the lessor or the lessee may (a) on default, expiration,

termination, or cancellation of the lease contract by the other party

but subject to the provisions of the lease contract and this Article, or

(b) if necessary to enforce his or her other rights and remedies under

this Article, remove the goods from the whole, free and clear of all

interests in the whole, but he or she must reimburse any holder of an

interest in the whole who is not the lessee and who has not otherwise

agreed for the cost of repair of any physical injury but not for any

diminution in value of the whole caused by the absence of the goods

removed or by any necessity for replacing them. A person entitled to

reimbursement may refuse permission to remove until the party seeking

removal gives adequate security for the performance of this obligation.

Section 2-A-311. Priority Subject to Subordination.

Nothing in this Article prevents subordination by agreement by any

person entitled to priority.

Section 2-A-401. Insecurity: Adequate Assurance of Performance.

(1) A lease contract imposes an obligation on each party that the

other's expectation of receiving due performance will not be impaired.

(2) If reasonable grounds for insecurity arise with respect to the

performance of either party, the insecure party may demand in writing

adequate assurance of due performance. Until the insecure party receives

that assurance, if commercially reasonable the insecure party may

suspend any performance for which he or she has not already received the

agreed return.

(3) A repudiation of the lease contract occurs if assurance of due

performance adequate under the circumstances of the particular case is

not provided to the insecure party within a reasonable time, not to

exceed thirty days after receipt of a demand by the other party.

(4) Between merchants, the reasonableness of grounds for insecurity

and the adequacy of any assurance offered must be determined according

to commercial standards.

(5) Acceptance of any nonconforming delivery or payment does not

prejudice the aggrieved party's right to demand adequate assurance of

future performance.

Section 2-A-402. Anticipatory Repudiation.

If either party repudiates a lease contract with respect to a

performance not yet due under the lease contract, the loss of which

performance will substantially impair the value of the lease contract to

the other, the aggrieved party may:

(1) for a commercially reasonable time, await retraction of

repudiation and performance by the repudiating party;

(2) make demand pursuant to Section 2-A-401 and await assurance of

future performance adequate under the circumstances of the particular

case; or

(3) resort to any right or remedy upon default under the lease

contract or this Article, even though the aggrieved party has notified

the repudiating party that the aggrieved party would await the

repudiating party's performance and assurance and has urged retraction.

In addition, whether or not the aggrieved party is pursuing one of the

foregoing remedies, the aggrieved party may suspend performance or, if

the aggrieved party is the lessor, proceed in accordance with the

provisions of this Article on the lessor's right to identify goods to

the lease contract notwithstanding default or to salvage unfinished

goods (Section 2-A-524).

Section 2-A-403. Retraction of Anticipatory Repudiation.

(1) Until the repudiating party's next performance is due, the

repudiating party can retract the repudiation unless, since the

repudiation, the aggrieved party has canceled the lease contract or

materially changed the aggrieved party's position or otherwise indicated

that the aggrieved party considers the repudiation final.

(2) Retraction may be by any method that clearly indicates to the

aggrieved party that the repudiating party intends to perform under the

lease contract and includes any assurance demanded under Section

2-A-401.

(3) Retraction reinstates a repudiating party's rights under a lease

contract with due excuse and allowance to the aggrieved party for any

delay occasioned by the repudiation.

Section 2-A-404. Substituted Performance.

(1) If without fault of the lessee, the lessor and the supplier, the

agreed berthing, loading, or unloading facilities fail or the agreed

type of carrier becomes unavailable or the agreed manner of delivery

otherwise becomes commercially impracticable, but a commercially

reasonable substitute is available, the substitute performance must be

tendered and accepted.

(2) If the agreed means or manner of payment fails because of domestic

or foreign governmental regulation:

(a) the lessor may withhold or stop delivery or cause the

supplier to withhold or stop delivery unless the lessee

provides a means or manner of payment that is commercially a

substantial equivalent; and

(b) if delivery has already been taken, payment by the means or

in the manner provided by the regulation discharges the

lessee's obligation unless the regulation is discriminatory,

oppressive, or predatory.

Section 2-A-405. Excused Performance.

(1) Subject to Section 2-A-404 on substituted performance, the

following rules apply:

(a) delay in delivery or nondelivery in whole or in part by a

lessor or a supplier who complies with paragraph (b) and

subsection (2) is not a default under the lease contract if

performance as agreed has been made impracticable by the

occurrence of a contingency the nonoccurrence of which was a

basic assumption on which the lease contract was made or by

compliance in good faith with any applicable foreign or

domestic governmental regulation or order, whether or not the

regulation or order later proves to be invalid.

(b) if the causes mentioned in paragraph (a) affect only part of

the lessor's or the supplier's capacity to perform, he or she

shall allocate production and deliveries among his or her

customers but at his or her option may include regular

customers not then under contract for sale or lease as well

as his or her own requirements for further manufacture. He or

she may so allocate in any manner that is fair and

reasonable.

(2) The lessor seasonably shall notify the lessee and in the case of a

finance lease the supplier seasonably shall notify the lessor and the

lessee, if known, that there will be delay or nondelivery and, if

allocation is required under subsection (1) (b), of the estimated quota

thus made available for the lessee.

Section 2-A-406. Procedure on Excused Performance.

(1) If the lessee receives notification of a material or indefinite

delay or an allocation justified under Section 2-A-405, the lessee may

by written notification to the lessor as to any goods involved, and with

respect to all of the goods if under an installment lease contract the

value of the whole lease contract is substantially impaired (Section

2-A-510):

(a) terminate the lease contract (Section 2-A-505(2)); or

(b) except in a finance lease that is not a consumer lease,

modify the lease contract by accepting the available quota in

substitution, with due allowance from the rent payable for

the balance of the lease term for the deficiency but without

further right against the lessor.

(2) If, after receipt of a notification from the lessor under Section

2-A-405, the lessee fails so to modify the lease agreement within a

reasonable time not exceeding thirty days, the lease contract lapses

with respect to any deliveries affected.

Section 2-A-407. Irrevocable Promises: Finance Leases.

(1) In the case of a finance lease that is not a consumer lease the

lessee's promises under the lease contract become irrevocable and

independent upon the lessee's acceptance of the goods.

(2) A promise that has become irrevocable and independent under

subsection (1):

(a) is effective and enforceable between the parties, and by or

against third parties including assignees of the parties; and

(b) is not subject to cancellation, termination, modification,

repudiation, excuse, or substitution without the consent of

the party to whom the promise runs.

(3) This section does not affect the validity under any other law of a

covenant in any lease contract making the lessee's promises irrevocable

and independent upon the lessee's acceptance of the goods.

Section 2-A-501. Default: Procedure.

(1) Whether the lessor or the lessee is in default under a lease

contract is determined by the lease agreement and this Article.

(2) If the lessor or the lessee is in default under the lease

contract, the party seeking enforcement has rights and remedies as

provided in this Article and, except as limited by this Article, as

provided in the lease agreement.

(3) If the lessor or the lessee is in default under the lease

contract, the party seeking enforcement may reduce the party's claim to

judgment, or otherwise enforce the lease contract by self-help or any

available judicial procedure or nonjudicial procedure, including

administrative proceeding, arbitration, or the like, in accordance with

this Article.

(4) Except as otherwise provided in Section 1--305(a) or this Article

or the lease agreement, the rights and remedies referred to in

subsections (2) and (3) are cumulative.

(5) If the lease agreement covers both real property and goods, the

party seeking enforcement may proceed under this part as to the goods,

or under other applicable law as to both the real property and the goods

in accordance with that party's rights and remedies in respect of the

real property, in which case this part does not apply.

Section 2-A-502. Notice After Default.

Except as otherwise provided in this Article or the lease agreement,

the lessor or lessee in default under the lease contract is not entitled

to notice of default or notice of enforcement from the other party to

the lease agreement.

Section 2-A-503. Modification or Impairment of Rights and Remedies.

(1) Except as otherwise provided in this Article, the lease agreement

may include rights and remedies for default in addition to or in

substitution for those provided in this Article and may limit or alter

the measure of damages recoverable under this Article.

(2) Resort to a remedy provided under this Article or in the lease

agreement is optional unless the remedy is expressly agreed to be

exclusive. If circumstances cause an exclusive or limited remedy to fail

of its essential purpose, or provision for an exclusive remedy is

unconscionable, remedy may be had as provided in this Article.

(3) Consequential damages may be liquidated under Section 2-A-504, or

may otherwise be limited, altered, or excluded unless the limitation,

alteration, or exclusion is unconscionable. Limitation, alteration, or

exclusion of consequential damages for injury to the person in the case

of consumer goods is prima facie unconscionable but limitation,

alteration, or exclusion of damages where the loss is commercial is not

prima facie unconscionable.

(4) Rights and remedies on default by the lessor or the lessee with

respect to any obligation or promise collateral or ancillary to the

lease contract are not impaired by this Article.

Section 2-A-504. Liquidation of Damages.

(1) Damages payable by either party for default, or any other act or

omission, including indemnity for loss or diminution of anticipated tax

benefits or loss or damage to lessor's residual interest, may be

liquidated in the lease agreement but only at an amount or by a formula

that is reasonable in light of the then anticipated harm caused by the

default or other act or omission.

(2) If the lease agreement provides for liquidation of damages, and

such provision does not comply with subsection (1), or such provision is

an exclusive or limited remedy that circumstances cause to fail of its

essential purpose, remedy may be had as provided in this Article.

(3) If the lessor justifiably withholds or stops delivery of goods

because of the lessee's default or insolvency (Section 2-A-525 or

2-A-526), the lessee is entitled to restitution of any amount by which

the sum of his or her payment exceeds:

(a) the amount to which the lessor is entitled by virtue of terms

liquidating the lessor's damages in accordance with

subsection (1); or

(b) in the absence of those terms, 20 percent of the then present

value of the total rent the lessee was obligated to pay for

the balance of the lease term, or, in the case of a consumer

lease, the lesser of such amount or $500.

(4) A lessee's right to restitution under subsection (3) is subject to

offset to the extent the lessor establishes:

(a) a right to recover damages under the provisions of this

Article other than subsection (1); and

(b) the amount or value of any benefits received by the lessee

directly or indirectly by reason of the lease contract.

Section 2-A-505. Cancellation and Termination and Effect of

Cancellation, Termination, Rescission, or Fraud on

Rights and Remedies.

(1) On cancellation of the lease contract, all obligations that are

still executory on both sides are discharged, but any right based on

prior default or performance survives, and the cancelling party also

retains any remedy for default of the whole lease contract or any

unperformed balance.

(2) On termination of the lease contract, all obligations that are

still executory on both sides are discharged but any right based on

prior default or performance survives.

(3) Unless the contrary intention clearly appears, expressions of

"cancellation," "rescission," or the like of the lease contract may not

be construed as a renunciation or discharge of any claim in damages for

an antecedent default.

(4) Rights and remedies for material misrepresentation or fraud

include all rights and remedies available under this Article for

default.

(5) Neither rescission nor a claim for rescission of the lease

contract nor rejection or return of the goods may bar or be deemed

inconsistent with a claim for damages or other right or remedy.

Section 2-A-506. Statute of Limitations.

(1) An action for default under a lease contract, including breach of

warranty or indemnity, must be commenced within four years after the

cause of action accrued. In a lease contract that is not a consumer

lease, by the original lease contract the parties may reduce the period

of limitation to not less than one year.

(2) A cause of action for default accrues when the act or omission on

which the default or breach of warranty is based is or should have been

discovered by the aggrieved party, or when the default occurs, whichever

is later. A cause of action for indemnity accrues when the act or

omission on which the claim for indemnity is based is or should have

been discovered by the indemnified party, whichever is later.

(3) If an action commenced within the time limited by subsection (1)

is so terminated as to leave available a remedy by another action for

the same default or breach of warranty or indemnity, the other action

may be commenced after the expiration of the time limited and within six

months after the termination of the first action unless the termination

resulted from voluntary discontinuance or from dismissal for failure or

neglect to prosecute.

(4) This section does not alter the law on tolling of the statute of

limitations nor does it apply to causes of action that have accrued

before this Article becomes effective.

Section 2-A-507. Proof of Market Rent: Time and Place.

(1) Damages based on market rent (Section 2-A-519 or 2-A-528) are

determined according to the rent for the use of the goods concerned for

a lease term identical to the remaining lease term of the original lease

agreement and prevailing at the times specified in Sections 2-A-519 and

2-A-528.

(2) If evidence of rent for the use of the goods concerned for a lease

term identical to the remaining lease term of the original lease

agreement and prevailing at the times or places described in this

Article is not readily available, the rent prevailing within any

reasonable time before or after the time described or at any other place

or for a different lease term which in commercial judgment or under

usage of trade would serve as a reasonable substitute for the one

described may be used, making any proper allowance for the difference,

including the cost of transporting the goods to or from the other place.

(3) Evidence of a relevant rent prevailing at a time or place or for a

lease term other than the one described in this Article offered by one

party is not admissible unless and until he or she has given the other

party notice the court finds sufficient to prevent unfair surprise.

(4) If the prevailing rent or value of any goods regularly leased in

any established market is in issue, reports in official publications of

trade journals or in newspapers or periodicals of general circulation

published as the reports of that market are admissible in evidence. The

circumstances of the preparation of the report may be shown to affect

its weight but not its admissibility.

Section 2-A-508. Lessee's Remedies.

(1) If a lessor fails to deliver the goods in conformity to the lease

contract (Section 2-A-509) or repudiates the lease contract (Section

2-A-402), or a lessee rightfully rejects the goods (Section 2-A-509) or

justifiably revokes acceptance of the goods (Section 2-A-517), then with

respect to any goods involved, and with respect to all of the goods if

under an installment lease contract the value of the whole lease

contract is substantially impaired (Section 2-A-510), the lessor is in

default under the lease contract and the lessee may:

(a) cancel the lease contract (Section 2-A-505 (1));

(b) recover so much of the rent and security as has been paid and is

just under the circumstances;

(c) cover and recover damages as to all goods affected whether or not

they have been identified to the lease contract (Sections 2-A-518 and

2-A-520), or recover damages for nondelivery (Sections 2-A-519 and

2-A-520);

(d) exercise any other rights or pursue any other remedies provided in

the lease contract.

(2) If a lessor fails to deliver the goods in conformity to the lease

contract or repudiates the lease contract, the lessee may also:

(a) if the goods have been identified, recover them (Section 2-A-522);

or

(b) in a proper case, obtain specific performance or replevy the goods

(Section 2-A-521).

(3) If a lessor is otherwise in default under a lease contract, the

lessee may exercise the rights and pursue the remedies provided in the

lease contract, which may include a right to cancel the lease, and in

Section 2-A-519(3).

(4) If a lessor has breached a warranty, whether express or implied,

the lessee may recover damages (Section 2-A-519(4)).

(5) On rightful rejection or justifiable revocation of acceptance, a

lessee has a security interest in goods in the lessee's possession or

control for any rent and security interest that has been paid and any

expenses reasonably incurred in their inspection, receipt,

transportation, and care and custody and may hold those goods and

dispose of them in good faith and in a commercially reasonable manner,

subject to Section 2-A-527(5).

(6) Subject to the provisions of Section 2-A-407, a lessee, on

notifying the lessor of the lessee's intention to do so, may deduct all

or any part of the damages resulting from any default under the lease

contract from any part of the rent still due under the same lease

contract.

Section 2-A-509. Lessee's Rights on Improper Delivery: Rightful

Rejection.

(1) Subject to the provisions of Section 2-A-510 on default in

installment lease contracts, if the goods or the tender or delivery fail

in any respect to conform to the lease contract, the lessee may reject

or accept the goods or accept any commercial unit or units and reject

the rest of the goods.

(2) Rejection of goods is ineffective unless it is within a reasonable

time after tender or delivery of the goods and the lessee seasonably

notifies the lessor.

Section 2-A-510. Installment Lease Contracts: Rejection and Default.

(1) Under an installment lease contract a lessee may reject any

delivery that is nonconforming if the nonconformity substantially

impairs the value of that delivery and cannot be cured or the

nonconformity is a defect in the required documents; but if the

nonconformity does not fall within subsection (2) and the lessor or the

supplier gives adequate assurance of its cure, the lessee must accept

that delivery.

(2) Whenever nonconformity or default with respect to one or more

deliveries substantially impairs the value of the installment lease

contract as a whole there is a default with respect to the whole. But,

the aggrieved party reinstates the installment lease contract as a whole

if the aggrieved party accepts a nonconforming delivery without

seasonably notifying of cancellation or brings an action with respect

only to past deliveries or demands performance as to future deliveries.

Section 2-A-511. Merchant Lessee's Duties as to Rightfully Rejected

Goods.

(1) Subject to any security interest of a lessee (Section 2-A-508(5)),

if a lessor or a supplier has no agent or place of business at the

market of rejection, a merchant lessee, after rejection of goods in his

or her possession or control, shall follow any reasonable instructions

received from the lessor or the supplier with respect to the goods. In

the absence of those instructions, a merchant lessee shall make

reasonable efforts to sell, lease, or otherwise dispose of the goods for

the lessor's account if they threaten to decline in value speedily.

Instructions are not reasonable if on demand indemnity for expenses is

not forthcoming.

(2) If a merchant lessee (subsection (1)) or any other lessee (Section

2-A-512) disposes of goods, he or she is entitled to reimbursement

either from the lessor or the supplier or out of the proceeds for

reasonable expenses of caring for and disposing of the goods and, if the

expenses include no disposition commission, to such commission as is

usual in the trade, or if there is none, to a reasonable sum not

exceeding 10 percent of the gross proceeds.

(3) In complying with this section or Section 2-A-512, the lessee is

held only to good faith. Good faith conduct hereunder is neither

acceptance or conversion nor the basis of an action for damages.

(4) A purchaser who purchases in good faith from a lessee pursuant to

this section or Section 2-A-512 takes the goods free of any rights of

the lessor and the supplier even though the lessee fails to comply with

one or more of the requirements of this Article.

Section 2-A-512. Lessee's Duties as to Rightfully Rejected Goods.

(1) Except as otherwise provided with respect to goods that threaten

to decline in value speedily (Section 2-A-511) and subject to any

security interest of a lessee (Section 2-A-508(5)):

(a) the lessee, after rejection of goods in the lessee's

possession, shall hold them with reasonable care at the

lessor's or the supplier's disposition for a reasonable time

after the lessee's seasonable notification of rejection;

(b) if the lessor or the supplier gives no instructions within a

reasonable time after notification of rejection, the lessee

may store the rejected goods for the lessor's or the

supplier's account or ship them to the lessor or the supplier

or dispose of them for the lessor's or the supplier's account

with reimbursement in the manner provided in Section 2-A-511;

but

(c) the lessee has no further obligations with regard to goods

rightfully rejected.

(2) Action by the lessee pursuant to subsection (1) is not acceptance

or conversion.

Section 2-A-513. Cure by Lessor of Improper Tender or Delivery;

Replacement.

(1) If any tender or delivery by the lessor or the supplier is

rejected because nonconforming and the time for performance has not yet

expired, the lessor or the supplier may seasonably notify the lessee of

the lessor's or the supplier's intention to cure and may then make a

conforming delivery within the time provided in the lease contract.

(2) If the lessee rejects a nonconforming tender that the lessor or

the supplier had reasonable grounds to believe would be acceptable with

or without money allowance, the lessor or the supplier may have a

further reasonable time to substitute a conforming tender if he or she

seasonably notifies the lessee.

Section 2-A-514. Waiver of Lessee's Objections.

(1) In rejecting goods, a lessee's failure to state a particular

defect that is ascertainable by reasonable inspection precludes the

lessee from relying on the defect to justify rejection or to establish

default:

(a) if, stated seasonably, the lessor or the supplier could have

cured it (Section 2-A-513); or

(b) between merchants if the lessor or the supplier after

rejection has made a request in writing for a full and final

written statement of all defects on which the lessee proposes

to rely.

(2) A lessee's failure to reserve rights when paying rent or other

consideration against documents precludes recovery of the payment for

defects apparent on the face of the documents.

Section 2-A-515. Acceptance of Goods.

(1) Acceptance of goods occurs after the lessee has had a reasonable

opportunity to inspect the goods and

(a) the lessee signifies or acts with respect to the goods in a

manner that signifies to the lessor or the supplier that the

goods are conforming or that the lessee will take or retain

them in spite of their nonconformity; or

(b) the lessee fails to make an effective rejection of the goods

(Section 2-A-509 (2)).

(2) Acceptance of a part of any commercial unit is acceptance of that

entire unit.

Section 2-A-516. Effect of Acceptance of Goods; Notice of Default;

Burden of Establishing Default After Acceptance;

Notice of Claim or Litigation to Person Answerable

Over.

(1) A lessee must pay rent for any goods accepted in accordance with

the lease contract, with due allowance for goods rightfully rejected or

not delivered.

(2) A lessee's acceptance of goods precludes rejection of the goods

accepted. In the case of a finance lease, other than a consumer lease in

which the supplier assisted in the preparation of the lease contract or

participated in negotiating the terms of the lease contract with the

lessor, if made with knowledge of a nonconformity, acceptance cannot be

revoked because of it. In any other case, if made with knowledge of a

nonconformity, acceptance cannot be revoked because of it unless the

acceptance was on the reasonable assumption that the nonconformity would

be seasonably cured. Acceptance does not of itself impair any other

remedy provided by this Article or the lease agreement for

nonconformity.

(3) If a tender has been accepted:

(a) within a reasonable time after the lessee discovers or should

have discovered any default, the lessee shall notify the

lessor and the supplier, if any, or be barred from any remedy

against the party not notified;

(b) except in the case of a consumer lease, within a reasonable

time after the lessee receives notice of litigation for

infringement or the like (Section 2-A-211) the lessee shall

notify the lessor or be barred from any remedy over for

liability established by the litigation; and

(c) the burden is on the lessee to establish any default.

(4) If a lessee is sued for breach of a warranty or other obligation

for which a lessor or a supplier is answerable over the following apply:

(a) the lessee may give the lessor or the supplier, or both,

written notice of the litigation. If the notice states that

the person notified may come in and defend and that if the

person notified does not do so that person will be bound in

any action against that person by the lessee by any

determination of fact common to the two litigations, then

unless the person notified after seasonable receipt of the

notice does come in and defend that person is so bound; and

(b) the lessor or the supplier may demand in writing that the

lessee turn over control of the litigation including

settlement if the claim is one for infringement or the like

(Section 2-A-211) or else be barred from any remedy over. If

the demand states that the lessor or the supplier agrees to

bear all expense and to satisfy any adverse judgment, then

unless the lessee after seasonable receipt of the demand does

turn over control the lessee is so barred.

(5) Subsections (3) and (4) apply to any obligation of a lessee to

hold the lessor or the supplier harmless against infringement or the

like (Section 2-A-211).

Section 2-A-517. Revocation of Acceptance of Goods.

(1) A lessee may revoke acceptance of a lot or commercial unit whose

nonconformity substantially impairs its value to the lessee if the

lessee has accepted it:

(a) except in the case of a finance lease, on the reasonable

assumption that its nonconformity would be cured and it has

not been seasonably cured; or

(b) without discovery of the nonconformity if the lessee's

acceptance was reasonably induced either by the lessor's

assurances or, except in the case of a finance lease, by the

difficulty of discovery before acceptance.

(2) Except in the case of a finance lease that is not a consumer

lease, a lessee may revoke acceptance of a lot or commercial unit if the

lessor defaults under the lease contract and the default substantially

impairs the value of that lot or commercial unit to the lessee.

(3) If the lease agreement so provides, the lessee may revoke

acceptance of a lot or commercial unit because of other defaults by the

lessor.

(4) Revocation of acceptance must occur within a reasonable time after

the lessee discovers or should have discovered the ground for it and

before any substantial change in condition of the goods which is not

caused by the nonconformity. Revocation is not effective until the

lessee notifies the lessor.

(5) A lessee who so revokes has the same right and duties with regard

to the goods involved as if the lessee had rejected them.

Section 2-A-518. Cover; Substitute Goods.

(1) After a default by a lessor under the lease contract of the type

described in Section 2-A-508(1) or, if agreed, after other default by

the lessor, the lessee may cover by making any purchase or lease of or

contract to purchase or lease goods in substitution for those due from

the lessor.

(2) Except as otherwise provided with respect to damages liquidated in

the lease agreement (Section 2-A-504) or otherwise determined pursuant

to agreement of the parties (Sections 1--302 and 2-A-503), if a lessee's

cover is by a lease agreement substantially similar to the original

lease agreement and the new lease agreement is made in good faith and in

a commercially reasonable manner, the lessee may recover from the lessor

as damages (a) the present value, as of the date of the commencement of

the term of the new lease agreement, of the rent under the new lease

agreement applicable to that period of the new lease term which is

comparable to the then remaining term of the original lease agreement

minus the present value as of the same date of the total rent for the

then remaining lease term of the original lease agreement, and (b) any

incidental or consequential damages, less expenses saved in consequence

of the lessor's default.

(3) If the lessee's cover is by lease agreement that qualifies for

treatment under subsection (2), the lessee may elect to proceed under

subsection (2) or Section 2-A-519. If a lessee's cover is by lease

agreement that for any reason does not qualify for treatment under

subsection (2), or is by purchase or otherwise, the lessee may recover

from the lessor as if the lessee had elected not to cover.

Section 2-A-519. Lessee's Damages for Non-delivery, Repudiation,

Default, and Breach of Warranty in Regard to Accepted

Goods.

(1) Except as otherwise provided with respect to damages liquidated in

the lease agreement (Section 2-A-504) or otherwise determined pursuant

to agreement of the parties (Section 1--302 and 2-A-503), if a lessee

elects not to cover or a lessee elects to cover and the cover is by

lease agreement, whether or not the lease agreement qualifies for

treatment under Section 2-A-518(2), or is by purchase or otherwise, the

measure of damages for non-delivery or repudiation by the lessor or for

rejection or revocation of acceptance by the lessee is the present

value, as of the date of the default, of the then market rent minus the

present value as of the same date of the original rent, computed for the

remaining lease term of the original lease agreement, together with

incidental and consequential damages, less expenses saved in consequence

of the lessor's default.

(2) Market rent is to be determined as of the place for tender or, in

cases of rejection after arrival or revocation of acceptance, as of the

place of arrival.

(3) Except as otherwise agreed, if the lessee has accepted goods and

given notification (Section 2-A-516(3)), the measure of damages for

non-conforming tender or delivery or other default by a lessor is the

loss resulting in the ordinary course of events from the lessor's

default as determined in any manner that is reasonable together with

incidental and consequential damages, less expenses saved in consequence

of the lessor's default.

(4) Except as otherwise agreed, the measure of damages for breach of

warranty is the present value at the time and place of acceptance of the

difference between the value of the use of the goods accepted and the

value if they had been as warranted for the lease term, unless special

circumstances show proximate damages of a different amount, together

with incidental and consequential damages, less expenses saved in

consequence of the lessor's default or breach of warranty.

Section 2-A-520. Lessee's Incidental and Consequential Damages.

(1) Incidental damages resulting from a lessor's default include

expenses reasonably incurred in inspection, receipt, transportation, and

care and custody of goods rightfully rejected or goods the acceptance of

which is justifiably revoked, any commercially reasonable charges,

expenses or commissions in connection with effecting cover, and any

other reasonable expense incident to the default.

(2) Consequential damages resulting from a lessor's default include:

(a) any loss resulting from general or particular requirements

and needs of which the lessor at the time of contracting had

reason to know and which could not reasonably be prevented by

cover or otherwise; and

(b) injury to person or property proximately resulting from any

breach of warranty.

Section 2-A-521. Lessee's Right to Specific Performance or Replevin.

(1) Specific performance may be decreed if the goods are unique or in

other proper circumstances.

(2) A decree for specific performance may include any terms and

conditions as to payment of the rent, damages, or other relief that the

court deems just.

(3) A lessee has a right of replevin, detinue, sequestration, claim

and delivery, or the like for goods identified to the lease contract if

after reasonable effort the lessee is unable to effect cover for those

goods or the circumstances reasonably indicate that the effort will be

unavailing.

Section 2-A-522. Lessee's Right to Goods on Lessor's Insolvency.

(1) Subject to subsection (2) and even though the goods have not been

shipped, a lessee who has paid a part or all of the rent and security

for goods identified to a lease contract (Section 2-A-217) on making and

keeping good a tender of any unpaid portion of the rent and security due

under the lease contract may recover the goods identified from the

lessor if the lessor becomes insolvent within ten days after receipt of

the first installment of rent and security.

(2) A lessee acquires the right to recover goods identified to a lease

contract only if they conform to the lease contract.

Section 2-A-523. Lessor's Remedies.

(1) If a lessee wrongfully rejects or revokes acceptance of goods or

fails to make a payment when due or repudiates with respect to a part or

the whole, then, with respect to any goods involved, and with respect to

all of the goods if under an installment lease contract the value of the

whole lease contract is substantially impaired (Section 2-A-510), the

lessee is in default under the lease contract and the lessor may:

(a) cancel the lease contract (Section 2-A-505 (1));

(b) proceed respecting goods not identified to the lease contract

(Section 2-A-524);

(c) withhold delivery of the goods and take possession of goods

previously delivered (Section 2-A-525);

(d) stop delivery of the goods by any bailee (Section 2-A-526);

(e) dispose of the goods and recover damages (Section 2-A-527), or

retain the goods and recover damages (Section 2-A-528), or in a proper

case recover rent (Section 2-A-529);

(f) exercise any other rights or pursue any other remedies provided in

the lease contract.

(2) If a lessor does not fully exercise a right or obtain a remedy to

which the lessor is entitled under subsection (1), the lessor may

recover the loss resulting in the ordinary course of events from the

lessee's default as determined in any reasonable manner, together with

incidental damages, less expenses saved in consequence of the lessee's

default.

(3) If a lessee is otherwise in default under a lease contract, the

lessor may exercise the rights and pursue the remedies provided in the

lease contract, which may include a right to cancel the lease. In

addition, unless otherwise provided in the lease contract:

(a) if the default substantially impairs the value of the lease

contract to the lessor, the lessor may exercise the rights and pursue

the remedies provided under subsection (1) or (2); or

(b) if the default does not substantially impair the value of the

lease contract to the lessor, the lessor may recover as provided in

subsection (2).

Section 2-A-524. Lessor's Right to Identify Goods to Lease Contract.

(1) After default by the lessee under the lease contract of the type

described in Section 2-A-523 (1) or Section 2-A-523 (3)(a) or, if

agreed, after other default by the lessee, the lessor may:

(a) identify to the lease contract conforming goods not already

identified if at the time the lessor learned of the default

they were in the lessor's or the supplier's possession or

control; and

(b) dispose of goods (Section 2-A-527(1)) that demonstrably have

been intended for the particular lease contract even though

those goods are unfinished.

(2) If the goods are unfinished, in the exercise of reasonable

commercial judgment for the purposes of avoiding loss and of effective

realization, an aggrieved lessor or the supplier may either complete

manufacture and wholly identify the goods to the lease contract or cease

manufacture and lease, sell, or otherwise dispose of the goods for scrap

or salvage value or proceed in any other reasonable manner.

Section 2-A-525. Lessor's Right to Possession of Goods.

(1) If a lessor discovers the lessee to be insolvent, the lessor may

refuse to deliver the goods.

(2) After a default by the lessee under the lease contract of the type

described in Section 2-A-523(1) or 2-A-523(3)(a) or, if agreed, after

other default by the lessee, the lessor has the right to take possession

of the goods. If the lease contract so provides, the lessor may require

the lessee to assemble the goods and make them available to the lessor

at a place to be designated by the lessor which is reasonably convenient

to both parties. Without removal, the lessor may render unusable any

goods employed in trade or business, and may dispose of goods on the

lessee's premises (Section 2-A-527).

(3) The lessor may proceed under subsection (2) without judicial

process if it can be done without breach of the peace or the lessor may

proceed by action.

Section 2-A-526. Lessor's Stoppage of Delivery in Transit or Otherwise.

(1) A lessor may stop delivery of goods in the possession of a carrier

or other bailee if the lessor discovers the lessee to be insolvent and

may stop delivery of carload, truckload, planeload, or larger shipments

of express or freight if the lessee repudiates or fails to make a

payment due before delivery, whether for rent, security or otherwise

under the lease contract, or for any other reason the lessor has a right

to withhold or take possession of the goods.

(2) In pursuing its remedies under subsection (1), the lessor may stop

delivery until:

(a) receipt of the goods by the lessee;

(b) acknowledgment to the lessee by any bailee of the goods,

except a carrier, that the bailee holds the goods for the

lessee; or

(c) such an acknowledgment to the lessee by a carrier via

reshipment or as a warehouse.

(3) (a) To stop delivery, a lessor shall so notify as to enable the

bailee by reasonable diligence to prevent delivery of the goods.

(b) After notification, the bailee shall hold and deliver the

goods according to the directions of the lessor, but the

lessor is liable to the bailee for any ensuing charges or

damages.

(c) A carrier who has issued a nonnegotiable bill of lading is

not obliged to obey a notification to stop received from a

person other than the consignor.

Section 2-A-527. Lessor's Rights to Dispose of Goods.

(1) After a default by a lessee under the lease contract of the type

described in Section 2-A-523(1) or 2-A-523(3)(a) or after the lessor

refuses to deliver or takes possession of goods (Section 2-A-525 or

2-A-526), or, if agreed, after other default by a lessee, the lessor may

dispose of the goods concerned or the undelivered balance thereof by

lease, sale, or otherwise.

(2) Except as otherwise provided with respect to damages liquidated in

the lease agreement (Section 2-A-504) or otherwise determined pursuant

to agreement of the parties (Sections 1--302 and 2-A-503), if the

disposition is by lease agreement substantially similar to the original

lease agreement and the new lease agreement is made in good faith and in

a commercially reasonable manner, the lessor may recover from the lessee

as damages (a) accrued and unpaid rent as of the date of the

commencement of the term of the new lease agreement, (b) the present

value, as of the same date, of the total rent for the then remaining

lease term of the original lease agreement minus the present value, as

of the same date, of the rent under the new lease agreement applicable

to that period of the new lease term which is comparable to the then

remaining lease term of the original lease agreement, and (c) any

incidental damages allowed under Section 2-A-530, less expenses saved in

consequence of the lessee's default.

(3) If the lessor's disposition is by lease agreement that qualifies

for treatment under subsection (2), the lessor may elect to proceed

under subsection (2) or Section 2-A-528. If the lessor's disposition is

by lease agreement that for any reason does not qualify for treatment

under subsection (2), or is by sale or otherwise, the lessor may recover

from the lessee as if the lessor had elected not to dispose of the

goods.

(4) A subsequent buyer or lessee who buys or leases from the lessor in

good faith for value as a result of a disposition under this section

takes the goods free of the original lease contract and any rights of

the original lessee even though the lessor fails to comply with one or

more of the requirements of this Article.

(5) The lessor is not accountable to the lessee for any profit made on

any disposition. A lessee who has rightfully rejected or justifiably

revoked acceptance shall account to the lessor for any excess over the

amount of the lessee's security interest (Section 2-A-508(5)).

Section 2-A-528. Lessor's Damages for Non-acceptance, Failure to Pay,

Repudiation, or Other Default.

(1) Except as otherwise provided with respect to damages liquidated in

the lease agreement (Section 2-A-504) or otherwise determined pursuant

to agreement of the parties (Sections 1--302 and 2-A-503), if a lessor

elects to retain the goods or a lessor elects to dispose of the goods

and the disposition is by lease agreement whether or not the lease

agreement qualifies for treatment under Section 2-A-527(2), or is by

sale or otherwise, the lessor may recover from the lessee as damages for

a default of the type described in Section 2-A-523(1) or 2-A-523 (3)(a),

or, if agreed, for other default of the lessee, (a) accrued and unpaid

rent as of the date of default if the lessee has never taken possession

of the goods, or, if the lessee has taken possession of the goods, as of

the date the lessor repossesses the goods or an earlier date on which

the lessee makes a tender of the goods to the lessor, (b) the present

value as of the date determined under clause (a) of the total rent for

the then remaining lease term of the original lease agreement minus the

present value as of the same date of the market rent at the place where

the goods are located computed for the same lease term, and (c) any

incidental damages allowed under Section 2-A-530, less expenses saved in

consequence of the lessee's default.

(2) If the measure of damages provided in subsection (1) is inadequate

to put a lessor in as good a position as performance would have, the

measure of damages is the present value of the profit, including

reasonable overhead, the lessor would have made from full performance by

the lessee, together with any incidental damages allowed under Section

2-A-530, due allowance for costs reasonably incurred and due credit for

payments or proceeds of disposition.

Section 2-A-529. Lessor's Action for the Rent.

(1) After default by the lessee under the lease contract of the type

described in Section 2-A-523(1) or 2-A-523(3)(a) or, if agreed, after

other default by the lessee, if the lessor complies with subsection (2),

the lessor may recover from the lessee as damages:

(a) for goods accepted by the lessee and not repossessed by or

tendered to the lessor, and for conforming goods lost or

damaged within a commercially reasonable time after risk of

loss passes to the lessee (Section 2-A-219), (i) accrued and

unpaid rent as of the date of entry of judgment in favor of

the lessor, (ii) the present value as of the same date of the

rent for the then remaining lease term of the lease

agreement, and (iii) any incidental damages allowed under

Section 2-A-530, less expenses saved in consequence of the

lessee's default; and

(b) for goods identified to the lease contract, if the lessor is

unable after reasonable effort to dispose of them at a

reasonable price or the circumstances reasonably indicate

that effort will be unavailing, (i) accrued and unpaid rent

as of the date of entry of judgment in favor of the lessor,

(ii) the present value as of the same date of the rent for

the then remaining lease term of the lease agreement, and

(iii) any incidental damages allowed under Section 2-A-530,

less expenses saved in consequence of the lessee's default.

(2) Except as provided in subsection (3), the lessor shall hold for

the lessee for the remaining lease term of the lease agreement any goods

that have been identified to the lease contract and are in the lessor's

control.

(3) The lessor may dispose of the goods at any time before collection

of the judgment for damages obtained pursuant to subsection (1). If the

disposition is before the end of the remaining lease term of the lease

agreement, the lessor's recovery against the lessee for damages is

governed by Section 2-A-527 or Section 2-A-528, and the lessor will

cause an appropriate credit to be provided against a judgment for

damages to the extent that the amount of the judgment exceeds the

recovery available pursuant to Section 2-A-527 or Section 2-A-528.

(4) Payment of the judgment for damages obtained pursuant to

subsection (1) entitles the lessee to the use and possession of the

goods not then disposed of for the remaining lease term of and in

accordance with the lease agreement.

(5) After default by the lessee under the lease contract of the type

described in Section 2-A-523 (1) or Section 2-A-523 (3)(a) or, if

agreed, after other default by the lessee, a lessor who is held not

entitled to rent under this section must nevertheless be awarded damages

for non-acceptance under Section 2-A-527 or 2-A-528.

Section 2-A-530. Lessor's Incidental Damages.

Incidental damages to an aggrieved lessor include any commercially

reasonable charges, expenses, or commissions incurred in stopping

delivery, in the transportation, care and custody of goods after the

lessee's default, in connection with return or disposition of the goods,

or otherwise resulting from the default.

Section 2-A-531. Standing to Sue Third Parties for Injury to Goods.

(1) If a third party so deals with goods that have been identified to

a lease contract as to cause actionable injury to a party to the lease

contract (a) the lessor has a right of action against the third party,

and (b) the lessee also has a right of action against the third party if

the lessee:

(i) has a security interest in the goods;

(ii) has an insurable interest in the goods; or

(iii) bears the risk of loss under the lease contract or has

since the injury assumed that risk as against the lessor

and the goods have been converted or destroyed.

(2) If at the time of the injury the party plaintiff did not bear the

risk of loss as against the other party to the lease contract and there

is no arrangement between them for disposition of the recovery, his or

her suit or settlement, subject to his or her own interest, is as a

fiduciary for the other party to the lease contract.

(3) Either party with the consent of the other may sue for the benefit

of whom it may concern.

Section 2-A-532. Lessor's Rights to Residual Interest.

In addition to any other recovery permitted by this Article or other

law, the lessor may recover from the lessee an amount that will fully

compensate the lessor for any loss of or damage to the lessor's residual

interest in the goods caused by the default of the lessee.

Section 3--101. Short Title.

This Article shall be known and may be cited as Uniform Commercial

Code--Commercial Paper.

Section 3--102. Definitions and Index of Definitions.

(1) In this Article unless the context otherwise requires

(a) "Issue" means:

(i) the first delivery of an instrument to a holder or a

remitter; or

(ii) if agreed by the payee, the first transmission by the drawer

to the payee of an image of an item and information derived

from the item that enables the depositary bank to collect the

item by transferring or presenting under federal law an

electronic check.

(b) An "order" is a direction to pay and must be more than an

authorization or request. It must identify the person to pay

with reasonable certainty. It may be addressed to one or more

such persons jointly or in the alternative but not in

succession.

(c) A "promise" is an undertaking to pay and must be more than an

acknowledgment of an obligation.

(d) "Secondary party" means a drawer or endorser.

(e) "Instrument" means a negotiable instrument.

(2) Other definitions applying to this Article and the sections in

which they appear are:

"Acceptance". Section 3--410.

"Accommodation party". Section 3--415.

"Alteration". Section 3--407.

"Certificate of deposit". Section 3--104.

"Certification". Section 3--411.

"Check". Section 3--104.

"Definite time". Section 3--109.

"Dishonor". Section 3--507.

"Draft". Section 3--104.

"Holder in due course". Section 3--302.

"Negotiation". Section 3--202.

"Note". Section 3--104.

"Notice of dishonor". Section 3--508.

"On demand". Section 3--108.

"Presentment". Section 3--504.

"Protest". Section 3--509.

"Restrictive Indorsement". Section 3--205.

"Signature". Section 3--401.

(3) The following definitions in other Articles apply to this Article:

"Account". Section 4--104.

"Banking Day". Section 4--104.

"Clearing house". Section 4--104.

"Collecting bank". Section 4--105.

"Customer". Section 4--104.

"Depositary Bank". Section 4--105.

"Documentary Draft". Section 4--104.

"Intermediary Bank". Section 4--105.

"Item". Section 4--104.

"Midnight deadline". Section 4--104.

"Payor bank". Section 4--105.

(4) In addition Article 1 contains general definitions and principles

of construction and interpretation applicable throughout this Article.

Section 3--103. Limitations on Scope of Article.

(1) This Article does not apply to money, documents of title or

investment securities.

(2) The provisions of this Article are subject to the provisions of

the Article on Bank Deposits and Collections (Article 4) and Secured

Transactions (Article 9).

Section 3--104. Form of Negotiable Instruments; "Draft"; "Check";

"Certificate of Deposit"; "Note".

(1) Any writing to be a negotiable instrument within this Article must

(a) be signed by the maker or drawer; and

(b) contain an unconditional promise or order to pay a sum

certain in money and no other promise, order, obligation or

power given by the maker or drawer except as authorized by

this Article; and

(c) be payable on demand or at a definite time; and

(d) be payable to order or to bearer.

(2) A writing which complies with the requirements of this section is

(a) a "draft" ("bill of exchange") if it is an order;

(b) a "check" if it is a draft drawn on a bank and payable on

demand;

(c) a "certificate of deposit" if it is an acknowledgment by a

bank of receipt of money with an engagement to repay it;

(d) a "note" if it is a promise other than a certificate of

deposit.

(3) As used in other Articles of this Act, and as the context may

require, the terms "draft", "check", "certificate of deposit" and "note"

may refer to instruments which are not negotiable within this Article as

well as to instruments which are so negotiable.

Section 3--105. When Promise or Order Unconditional.

(1) A promise or order otherwise unconditional is not made conditional

by the fact that the instrument

(a) is subject to implied or constructive conditions; or

(b) states its consideration, whether performed or promised, or

the transaction which gave rise to the instrument, or that

the promise or order is made or the instrument matures in

accordance with or "as per" such transaction; or

(c) refers to or states that it arises out of a separate

agreement or refers to a separate agreement for rights as to

prepayment or acceleration; or

(d) states that it is drawn under a letter of credit; or

(e) states that it is secured, whether by mortgage, reservation

of title or otherwise; or

(f) indicates a particular account to be debited or any other

fund or source from which reimbursement is expected; or

(g) is limited to payment out of a particular fund or the

proceeds of a particular source, if the instrument is issued

by a government or governmental agency or unit; or

(h) is limited to payment out of the entire assets of a

partnership, unincorporated association, trust or estate by

or on behalf of which the instrument is issued.

(2) A promise or order is not unconditional if the instrument

(a) states that it is subject to or governed by any other

agreement; or

(b) states that it is to be paid only out of a particular fund or

source except as provided in this section.

Section 3--106. Sum Certain.

(1) The sum payable is a sum certain even though it is to be paid

(a) with a stated rate of interest or by stated installments; or

(b) with stated different rates of interest before and after

default or a specified date; or

(c) with a stated discount or addition if paid before or after

the date fixed for payment; or

(d) with exchange or less exchange, whether at a fixed rate or at

the current rate; or

(e) with costs of collection or an attorney's fee or both upon

default.

(2) For the purposes of subsection one of this section "a stated rate

of interest" shall also include a rate of interest that cannot be

calculated by looking only to the instrument but which is readily

ascertainable by a reference in the instrument to a published statute,

regulation, rule of court, generally accepted commercial or financial

index, compendium of interest rates, or announced rate of a named

financial institution.

(3) Nothing in this section shall validate any term which is otherwise

illegal.

Section 3--107. Money.

(1) An instrument is payable in money if the medium of exchange in

which it is payable is money at the time the instrument is made. An

instrument payable in "currency" or "current funds" is payable in money.

(2) A promise or order to pay a sum stated in a foreign currency is

for a sum certain in money and may be satisfied by payment of that

number of dollars which the stated foreign currency will purchase at the

buying sight rate for that currency on the day on which the instrument

is payable, or, if payable on demand, on the day of demand.

Section 3--108. Payable on Demand.

Instruments payable on demand include those payable at sight or on

presentation and those in which no time for payment is stated.

Section 3--109. Definite Time.

(1) An instrument is payable at a definite time if by its terms it is

payable

(a) on or before a stated date or at a fixed period after a

stated date; or

(b) at a fixed period after sight; or

(c) at a definite time subject to any acceleration; or

(d) at a definite time subject to extension at the option of the

holder, or to extension to a further definite time at the

option of the maker or acceptor or automatically upon or

after a specified act or event.

(2) An instrument which by its terms is otherwise payable only upon an

act or event uncertain as to time of occurrence is not payable at a

definite time even though the act or event has occurred.

Section 3--110. Payable to Order.

(1) An instrument is payable to order when by its terms it is payable

to the order or assigns of any person therein specified with reasonable

certainty, or to him or his order, or when it is conspicuously

designated on its face as "exchange" or the like and names a payee. It

may be payable to the order of

(a) the maker or drawer; or

(b) the drawee; or

(c) a payee who is not maker, drawer or drawee; or

(d) two or more payees together or in the alternative; or

(e) an estate, trust or fund, in which case it is payable to the

order of the representative of such estate, trust or fund or

his successors; or

(f) an office, or an officer by his title as such in which case

it is payable to the principal but the incumbent of the

office or his successors may act as if he or they were the

holder; or

(g) a partnership or unincorporated association, in which case it

is payable to the partnership or association and may be

indorsed or transferred by any person thereto authorized.

(2) An instrument not payable to order is not made so payable by such

words as "payable upon return of this instrument properly indorsed."

(3) An instrument made payable both to order and to bearer is payable

to order unless the bearer words are handwritten or typewritten.

Section 3--111. Payable to Bearer.

An instrument is payable to bearer when by its terms it is payable to

(a) bearer or the order of bearer; or

(b) a specified person or bearer; or

(c) "cash" or the order of "cash", or any other indication which

does not purport to designate a specific payee.

Section 3--112. Terms and Omissions Not Affecting Negotiability.

(1) The negotiability of an instrument is not affected by

(a) the omission of a statement of any consideration or of the

place where the instrument is drawn or payable; or

(b) a statement that collateral has been given to secure

obligations either on the instrument or otherwise of an

obligor on the instrument or that in the case of default on

those obligations the holder may realize on or dispose of the

collateral; or

(c) a promise or power to maintain or protect collateral or to

give additional collateral; or

(d) a term authorizing a confession of judgment on the instrument

if it is not paid when due; or

(e) a term purporting to waive the benefit of any law intended

for the advantage or protection of any obligor; or

(f) a term in a draft providing that the payee by indorsing or

cashing it acknowledges full satisfaction of an obligation of

the drawer; or

(g) a statement in a draft drawn in a set of parts (Section

3--801) to the effect that the order is effective only if no

other part has been honored; or

(h) a term that specifies the law that governs the promise or

order; or

(i) an undertaking to resolve in a specified forum a dispute

concerning the promise or order.

(2) Nothing in this section shall validate any term which is otherwise

illegal.

Section 3--113. Seal.

An instrument otherwise negotiable is within this Article even though

it is under a seal.

Section 3--114. Date, Antedating, Postdating.

(1) The negotiability of an instrument is not affected by the fact

that it is undated, antedated or postdated.

(2) Where an instrument is antedated or postdated the time when it is

payable is determined by the stated date if the instrument is payable on

demand or at a fixed period after date.

(3) Where the instrument or any signature thereon is dated, the date

is presumed to be correct.

Section 3--115. Incomplete Instruments.

(1) When a paper whose contents at the time of signing show that it is

intended to become an instrument is signed while still incomplete in any

necessary respect it cannot be enforced until completed, but when it is

completed in accordance with authority given it is effective as

completed.

(2) If the completion is unauthorized the rules as to material

alteration apply (Section 3--407), even though the paper was not

delivered by the maker or drawer; but the burden of establishing that

any completion is unauthorized is on the party so asserting.

Section 3--116. Instruments Payable to Two or More Persons.

An instrument payable to the order of two or more persons

(a) if in the alternative is payable to any one of them and may be

negotiated, discharged or enforced by any of them who has possession of

it;

(b) if not in the alternative is payable to all of them and may be

negotiated, discharged or enforced only by all of them.

Section 3--117. Instruments Payable With Words of Description.

An instrument made payable to a named person with the addition of

words describing him

(a) as agent or officer of a specified person is payable to his

principal but the agent or officer may act as if he were the holder;

(b) as any other fiduciary for a specified person or purpose is

payable to the payee and may be negotiated, discharged or enforced by

him;

(c) in any other manner is payable to the payee unconditionally and

the additional words are without effect on subsequent parties.

Section 3--118. Ambiguous Terms and Rules of Construction.

The following rules apply to every instrument:

(a) Where there is doubt whether the instrument is a draft or a note

the holder may treat it as either. A draft drawn on the drawer is

effective as a note.

(b) Handwritten terms control typewritten and printed terms, and

typewritten control printed.

(c) Words control figures except that if the words are ambiguous

figures control.

(d) Unless otherwise specified a provision for interest means interest

at the judgment rate at the place of payment from the date of the

instrument, or if it is undated from the date of issue.

(e) Unless the instrument otherwise specifies two or more persons who

sign as maker, acceptor or drawer or indorser and as a part of the same

transaction are jointly and severally liable even though the instrument

contains such words as "I promise to pay."

(f) Unless otherwise specified consent to extension authorizes a

single extension for not longer than the original period. A consent to

extension, expressed in the instrument, is binding on secondary parties

and accommodation makers. A holder may not exercise his option to extend

an instrument over the objection of a maker or acceptor or other party

who in accordance with Section 3--604 tenders full payment when the

instrument is due.

Section 3--119. Other Writings Affecting Instrument.

(1) As between the obligor and his immediate obligee or any transferee

the terms of an instrument may be modified or affected by any other

written agreement executed as a part of the same transaction, except

that a holder in due course is not affected by any limitation of his

rights arising out of the separate written agreement if he had no notice

of the limitation when he took the instrument.

(2) A separate agreement does not affect the negotiability of an

instrument.

Section 3--120. Instruments "Payable Through" Bank.

An instrument which states that it is "payable through" a bank or the

like designates that bank as a collecting bank to make presentment but

does not of itself authorize the bank to pay the instrument.

Section 3--121. Instruments Payable at Bank.

A note or acceptance which states that it is payable at a bank is the

equivalent of a draft drawn on the bank payable when it falls due out of

any funds of the maker or acceptor in current account or otherwise

available for such payment.

Section 3--122. Accrual of Cause of Action.

(1) A cause of action against a maker or an acceptor accrues

(a) in the case of a time instrument on the day after maturity;

(b) in the case of a demand instrument upon its date or, if no

date is stated, on the date of issue.

(2) A cause of action against the obligor of a demand or time

certificate of deposit accrues upon demand, but demand on a time

certificate may not be made until on or after the date of maturity.

(3) A cause of action against a drawer of a draft or an indorser of

any instrument accrues upon demand following dishonor of the instrument.

Notice of dishonor is a demand.

(4) Unless an instrument provides otherwise, interest runs at the rate

provided by law for a judgment

(a) in the case of a maker, acceptor or other primary obligor of

a demand instrument, from the date of demand;

(b) in all other cases from the date of accrual of the cause of

action.

Section 3--201. Transfer: Right to Indorsement.

(1) Transfer of an instrument vests in the transferee such rights as

the transferor has therein, except that a transferee who has himself

been a party to any fraud or illegality affecting the instrument or who

as a prior holder had notice of a defense or claim against it cannot

improve his position by taking from a later holder in due course.

(2) A transfer of a security interest in an instrument vests the

foregoing rights in the transferee to the extent of the interest

transferred.

(3) Unless otherwise agreed any transfer for value of an instrument

not then payable to bearer gives the transferee the specifically

enforceable right to have the unqualified indorsement of the transferor.

Negotiation takes effect only when the indorsement is made and until

that time there is no presumption that the transferee is the owner.

Section 3--202. Negotiation.

(1) Negotiation is the transfer of an instrument in such form that the

transferee becomes a holder. If the instrument is payable to order it is

negotiated by delivery with any necessary indorsement; if payable to

bearer it is negotiated by delivery.

(2) An indorsement must be written by or on behalf of the holder and

on the instrument or on a paper so firmly affixed thereto as to become a

part thereof.

(3) An indorsement is effective for negotiation only when it conveys

the entire instrument or any unpaid residue. If it purports to be of

less it operates only as a partial assignment.

(4) Words of assignment, condition, waiver, guaranty, limitation or

disclaimer of liability and the like accompanying an indorsement do not

affect its character as an indorsement.

Section 3--203. Wrong or Misspelled Name.

Where an instrument is made payable to a person under a misspelled

name or one other than his own he may indorse in that name or his own or

both; but signature in both names may be required by a person paying or

giving value for the instrument.

Section 3--204. Special Indorsement; Blank Indorsement.

(1) A special indorsement specifies the person to whom or to whose

order it makes the instrument payable. Any instrument specially indorsed

becomes payable to the order of the special indorsee and may be further

negotiated only by his indorsement.

(2) An indorsement in blank specifies no particular indorsee and may

consist of a mere signature. An instrument payable to order and indorsed

in blank becomes payable to bearer and may be negotiated by delivery

alone until specially indorsed.

(3) The holder may convert a blank indorsement into a special

indorsement by writing over the signature of the indorser in blank any

contract consistent with the character of the indorsement.

Section 3--205. Restrictive Indorsements.

An indorsement is restrictive which either

(a) is conditional; or

(b) purports to prohibit further transfer of the instrument; or

(c) includes the words "for collection", "for deposit", "pay any

bank", or like terms signifying a purpose of deposit or collection; or

(d) otherwise states that it is for the benefit or use of the indorser

or of another person.

Section 3--206. Effect of Restrictive Indorsement.

(1) No restrictive indorsement prevents further transfer or

negotiation of the instrument.

(2) An intermediary bank, or a payor bank which is not the depositary

bank, is neither given notice nor otherwise affected by a restrictive

indorsement of any person except the bank's immediate transferor or the

person presenting for payment.

(3) Except for an intermediary bank, any transferee under an

indorsement which is conditional or includes the words "for collection",

"for deposit", "pay any bank", or like terms (subparagraphs (a) and (c)

of Section 3--205) must pay or apply any value given by him for or on

the security of the instrument consistently with the indorsement and to

the extent that he does so he becomes a holder for value. In addition

such transferee is a holder in due course if he otherwise complies with

the requirements of Section 3--302 on what constitutes a holder in due

course.

(4) The first taker under an indorsement for the benefit of the

indorser or another person (subparagraph (d) of Section 3--205) must pay

or apply any value given by him for or on the security of the instrument

consistently with the indorsement and to the extent that he does so he

becomes a holder for value. In addition such taker is a holder in due

course if he otherwise complies with the requirements of Section 3--302

on what constitutes a holder in due course. A later holder for value is

neither given notice nor otherwise affected by such restrictive

indorsement unless he has knowledge that a fiduciary or other person has

negotiated the instrument in any transaction for his own benefit or

otherwise in breach of duty (subsection (2) of Section 3--304).

Section 3--207. Negotiation Effective Although It May Be Rescinded.

(1) Negotiation is effective to transfer the instrument although the

negotiation is

(a) made by an infant, a corporation exceeding its powers, or any

other person without capacity; or

(b) obtained by fraud, duress or mistake of any kind; or

(c) part of an illegal transaction; or

(d) made in breach of duty.

(2) Except as against a subsequent holder in due course such

negotiation is in an appropriate case subject to rescission, the

declaration of a constructive trust or any other remedy permitted by

law.

Section 3--208. Reacquisition.

Where an instrument is returned to or reacquired by a prior party he

may cancel any indorsement which is not necessary to his title and

reissue or further negotiate the instrument, but any intervening party

is discharged as against the reacquiring party and subsequent holders

not in due course and if his indorsement has been cancelled is

discharged as against subsequent holders in due course as well.

Section 3--301. Rights of a Holder.

The holder of an instrument whether or not he is the owner may

transfer or negotiate it and, except as otherwise provided in Section

3--603 on payment or satisfaction, discharge it or enforce payment in

his own name.

Section 3--302. Holder in Due Course.

(1) A holder in due course is a holder who takes the instrument

(a) for value; and

(b) in good faith; and

(c) without notice that it is overdue or has been dishonored or

of any defense against or claim to it on the part of any

person.

(2) A payee may be a holder in due course.

(3) A holder does not become a holder in due course of an instrument:

(a) by purchase of it at judicial sale or by taking it under

legal process; or

(b) by acquiring it in taking over an estate; or

(c) by purchasing it as part of a bulk transaction not in regular

course of business of the transferor.

(4) A purchaser of a limited interest can be a holder in due course

only to the extent of the interest purchased.

Section 3--303. Taking for Value.

A holder takes the instrument for value

(a) to the extent that the agreed consideration has been performed or

that he acquires a security interest in or a lien on the instrument

otherwise than by legal process; or

(b) when he takes the instrument in payment of or as security for an

antecedent claim against any person whether or not the claim is due; or

(c) when he gives a negotiable instrument for it or makes an

irrevocable commitment to a third person.

Section 3--304. Notice to Purchaser.

(1) The purchaser has notice of a claim or defense if

(a) the instrument is so incomplete, bears such visible evidence

of forgery or alteration, or is otherwise so irregular as to

call into question its validity, terms or ownership or to

create an ambiguity as to the party to pay; or

(b) the purchaser has notice that the obligation of any party is

voidable in whole or in part, or that all parties have been

discharged.

(2) The purchaser has notice of a claim against the instrument when he

has knowledge that a fiduciary has negotiated the instrument in payment

of or as security for his own debt or in any transaction for his own

benefit or otherwise in breach of duty.

(3) The purchaser has notice that an instrument is overdue if he has

reason to know

(a) that any part of the principal amount is overdue or that

there is an uncured default in payment of another instrument

of the same series; or

(b) that acceleration of the instrument has been made; or

(c) that he is taking a demand instrument after demand has been

made or more than a reasonable length of time after its

issue. A reasonable time for a check drawn and payable within

the states and territories of the United States and the

District of Columbia is presumed to be thirty days.

(4) Knowledge of the following facts does not of itself give the

purchaser notice of a defense or claim

(a) that the instrument is antedated or postdated;

(b) that it was issued or negotiated in return for an executory

promise or accompanied by a separate agreement, unless the

purchaser has notice that a defense or claim has arisen from

the terms thereof;

(c) that any party has signed for accommodation;

(d) that an incomplete instrument has been completed, unless the

purchaser has notice of any improper completion;

(e) that any person negotiating the instrument is or was a

fiduciary;

(f) that there has been default in payment of interest on the

instrument or in payment of any other instrument, except one

of the same series.

(5) The filing or recording of a document does not of itself

constitute notice within the provisions of this Article to a person who

would otherwise be a holder in due course.

(6) To be effective notice must be received at such time and in such

manner as to give a reasonable opportunity to act on it.

(7) In any event, to constitute notice of a claim or defense, the

purchaser must have knowledge of the claim or defense or knowledge of

such facts that his action in taking the instrument amounts to bad

faith.

Section 3--305. Rights of a Holder in Due Course.

To the extent that a holder is a holder in due course he takes the

instrument free from

(1) all claims to it on the part of any person; and

(2) all defenses of any party to the instrument with whom the holder

has not dealt except

(a) infancy, to the extent that it is a defense to a simple

contract; and

(b) such other incapacity, or duress, or illegality of the

transaction, as renders the obligation of the party a

nullity; and

(c) such misrepresentation as has induced the party to sign the

instrument with neither knowledge nor reasonable opportunity

to obtain knowledge of its character or its essential terms;

and

(d) discharge in insolvency proceedings; and

(e) any other discharge of which the holder has notice when he

takes the instrument.

Section 3--306. Rights of One Not Holder in Due Course.

Unless he has the rights of a holder in due course any person takes

the instrument subject to

(a) all valid claims to it on the part of any person; and

(b) all defenses of any party which would be available in an action on

a simple contract; and

(c) the defenses of want or failure of consideration, non-performance

of any condition precedent, non-delivery, or delivery for a special

purpose (Section 3--408); and

(d) the defense that he or a person through whom he holds the

instrument acquired it by theft, or that payment or satisfaction to such

holder would be inconsistent with the terms of a restrictive

indorsement. The claim of any third person to the instrument is not

otherwise available as a defense to any party liable thereon unless the

third person himself defends the action for such party.

Section 3--307. Burden of Establishing Signatures, Defenses and Due

Course.

(1) Unless specifically denied in the pleadings each signature on an

instrument is admitted. When the effectiveness of a signature is put in

issue

(a) the burden of establishing it is on the party claiming under

the signature; but

(b) the signature is presumed to be genuine or authorized except

where the action is to enforce the obligation of a purported

signer who has died or become incompetent before proof is

required.

(2) When signatures are admitted or established, production of the

instrument entitles a holder to recover on it unless the defendant

establishes a defense.

(3) After it is shown that a defense exists a person claiming the

rights of a holder in due course has the burden of establishing that he

or some person under whom he claims is in all respects a holder in due

course.

Section 3--401. Signature.

(1) No person is liable on an instrument unless his signature appears

thereon.

(2) A signature is made by use of any name, including any trade or

assumed name, upon an instrument, or by any word or mark used in lieu of

a written signature.

Section 3--402. Signature in Ambiguous Capacity.

Unless the instrument clearly indicates that a signature is made in

some other capacity it is an indorsement.

Section 3--403. Signature by Authorized Representative.

(1) A signature may be made by an agent or other representative, and

his authority to make it may be established as in other cases of

representation. No particular form of appointment is necessary to

establish such authority.

(2) An authorized representative who signs his own name to an

instrument

(a) is personally obligated if the instrument neither names the

person represented nor shows that the representative signed

in a representative capacity;

(b) except as otherwise established between the immediate

parties, is personally obligated if the instrument names the

person represented but does not show that the representative

signed in a representative capacity, or if the instrument

does not name the person represented but does show that the

representative signed in a representative capacity.

(3) Except as otherwise established the name of an organization

preceded or followed by the name and office of an authorized individual

is a signature made in a representative capacity.

Section 3--404. Unauthorized Signatures.

(1) Any unauthorized signature is wholly inoperative as that of the

person whose name is signed unless he ratifies it or is precluded from

denying it; but it operates as the signature of the unauthorized signer

in favor of any person who in good faith pays the instrument or takes it

for value.

(2) Any unauthorized signature may be ratified for all purposes of

this Article. Such ratification does not of itself affect any rights of

the person ratifying against the actual signer.

Section 3--405. Impostors; Signature in Name of Payee.

(1) An indorsement by any person in the name of a named payee is

effective if

(a) an impostor by use of the mails or otherwise has induced the

maker or drawer to issue the instrument to him or his

confederate in the name of the payee; or

(b) a person signing as or on behalf of a maker or drawer intends

the payee to have no interest in the instrument; or

(c) an agent or employee of the maker or drawer has supplied him

with the name of the payee intending the latter to have no

such interest.

(2) Nothing in this section shall affect the criminal or civil

liability of the person so indorsing.

Section 3--406. Negligence Contributing to Alteration or Unauthorized

Signature.

Any person who by his negligence substantially contributes to a

material alteration of the instrument or to the making of an

unauthorized signature is precluded from asserting the alteration or

lack of authority against a holder in due course or against a drawee or

other payor who pays the instrument in good faith and in accordance with

the reasonable commercial standards of the drawee's or payor's business.

Section 3--407. Alteration.

(1) Any alteration of an instrument is material which changes the

contract of any party thereto in any respect, including any such change

in

(a) the number or relations of the parties; or

(b) an incomplete instrument, by completing it otherwise than as

authorized; or

(c) the writing as signed, by adding to it or by removing any

part of it.

(2) As against any person other than a subsequent holder in due course

(a) alteration by the holder which is both fraudulent and

material discharges any party whose contract is thereby

changed unless that party assents or is precluded from

asserting the defense;

(b) no other alteration discharges any party and the instrument

may be enforced according to its original tenor, or as to

incomplete instruments according to the authority given.

(3) A subsequent holder in due course may in all cases enforce the

instrument according to its original tenor, and when an incomplete

instrument has been completed, he may enforce it as completed.

Section 3--408. Consideration.

Want or failure of consideration is a defense as against any person

not having the rights of a holder in due course (Section 3--305), except

that no consideration is necessary for an instrument or obligation

thereon given in payment of or as security for an antecedent obligation

of any kind. Nothing in this section shall be taken to displace any

statute outside this Act under which a promise is enforceable

notwithstanding lack or failure of consideration. Partial failure of

consideration is a defense pro tanto whether or not the failure is in an

ascertained or liquidated amount.

Section 3--409. Draft Not an Assignment.

(1) A check or other draft does not of itself operate as an assignment

of any funds in the hands of the drawee available for its payment, and

the drawee is not liable on the instrument until he accepts it.

(2) Nothing in this section shall affect any liability in contract,

tort or otherwise arising from any letter of credit or other obligation

or representation which is not an acceptance.

Section 3--410. Definition and Operation of Acceptance.

(1) Acceptance is the drawee's signed engagement to honor the draft as

presented. It must be written on the draft, and may consist of his

signature alone. It becomes operative when completed by delivery or

notification.

(2) A draft may be accepted although it has not been signed by the

drawer or is otherwise incomplete or is overdue or has been dishonored.

(3) Where the draft is payable at a fixed period after sight and the

acceptor fails to date his acceptance the holder may complete it by

supplying a date in good faith.

Section 3--411. Certification of a Check.

(1) Certification of a check is acceptance. Where a holder procures

certification the drawer and all prior indorsers are discharged.

(2) Unless otherwise agreed a bank has no obligation to certify a

check.

(3) A bank may certify a check before returning it for lack of proper

indorsement. If it does so the drawer is discharged.

Section 3--412. Acceptance Varying Draft.

(1) Where the drawee's proffered acceptance in any manner varies the

draft as presented the holder may refuse the acceptance and treat the

draft as dishonored in which case the drawee is entitled to have his

acceptance cancelled.

(2) The terms of the draft are not varied by an acceptance to pay at

any particular bank or place in the United States, unless the acceptance

states that the draft is to be paid only at such bank or place.

(3) Where the holder assents to an acceptance varying the terms of the

draft each drawer and indorser who does not affirmatively assent is

discharged.

Section 3--413. Contract of Maker, Drawer and Acceptor.

(1) The maker or acceptor engages that he will pay the instrument

according to its tenor at the time of his engagement or as completed

pursuant to Section 3--115 on incomplete instruments.

(2) The drawer engages that upon dishonor of the draft and any

necessary notice of dishonor or protest he will pay the amount of the

draft to the holder or to any indorser who takes it up. The drawer may

disclaim this liability by drawing without recourse.

(3) By making, drawing or accepting the party admits as against all

subsequent parties including the drawee the existence of the payee and

his then capacity to indorse.

Section 3--414. Contract of Indorser; Order of Liability.

(1) Unless the indorsement otherwise specifies (as by such words as

"without recourse") every indorser engages that upon dishonor and any

necessary notice of dishonor and protest he will pay the instrument

according to its tenor at the time of his indorsement to the holder or

to any subsequent indorser who takes it up, even though the indorser who

takes it up was not obligated to do so.

(2) Unless they otherwise agree indorsers are liable to one another in

the order in which they indorse, which is presumed to be the order in

which their signatures appear on the instrument.

Section 3--415. Contract of Accommodation Party.

(1) An accommodation party is one who signs the instrument in any

capacity for the purpose of lending his name to another party to it.

(2) When the instrument has been taken for value before it is due the

accommodation party is liable in the capacity in which he has signed

even though the taker knows of the accommodation.

(3) As against a holder in due course and without notice of the

accommodation oral proof of the accommodation is not admissible to give

the accommodation party the benefit of discharges dependent on his

character as such. In other cases the accommodation character may be

shown by oral proof.

(4) An indorsement which shows that it is not in the chain of title is

notice of its accommodation character.

(5) An accommodation party is not liable to the party accommodated,

and if he pays the instrument has a right of recourse on the instrument

against such party.

(6) An accommodation party warrants to any subsequent holder who is

not the party accommodated and who takes the instrument in good faith

that

(a) all signatures are genuine or authorized; and

(b) the instrument has not been materially altered; and

(c) all prior parties had capacity to contract; and

(d) he has no knowledge of any insolvency proceeding instituted

with respect to the maker or acceptor or the drawer of an

unaccepted instrument.

Section 3--416. Contract of Guarantor.

(1) "Payment guaranteed" or equivalent words added to a signature mean

that the signer engages that if the instrument is not paid when due he

will pay it according to its tenor without resort by the holder to any

other party.

(2) "Collection guaranteed" or equivalent words added to a signature

mean that the signer engages that if the instrument is not paid when due

he will pay it according to its tenor, but only after the holder has

reduced his claim against the maker or acceptor to judgment and

execution has been returned unsatisfied, or after the maker or acceptor

has become insolvent or it is otherwise apparent that it is useless to

proceed against him.

(3) Words of guaranty which do not otherwise specify guarantee

payment.

(4) No words of guaranty added to the signature of a sole maker or

acceptor affect his liability on the instrument. Such words added to the

signature of one of two or more makers or acceptors create a presumption

that the signature is for the accommodation of the others.

(5) When words of guaranty are used presentment, notice of dishonor

and protest are not necessary to charge the user.

(6) Any guaranty written on the instrument is enforcible

notwithstanding any statute of frauds.

Section 3--417. Warranties on Presentment and Transfer.

(1) Any person who obtains payment or acceptance and any prior

transferor warrants to a person who in good faith pays or accepts that

(a) he has a good title to the instrument or is authorized to

obtain payment or acceptance on behalf of one who has a good

title; and

(b) he has no knowledge that the signature of the maker or drawer

is unauthorized, except that this warranty is not given by a

holder in due course acting in good faith

(i) to a maker with respect to the maker's own signature; or

(ii) to a drawer with respect to the drawer's own signature,

whether or not the drawer is also the drawee; or

(iii) to an acceptor of a draft if the holder in due course

took the draft after the acceptance or obtained the

acceptance without knowledge that the drawer's signature

was unauthorized; and

(c) the instrument has not been materially altered, except that

this warranty is not given by a holder in due course acting

in good faith

(i) to the maker of a note; or

(ii) to the drawer of a draft whether or not the drawer is

also the drawee; or

(iii) to the acceptor of a draft with respect to an alteration

made prior to the acceptance if the holder in due course

took the draft after the acceptance, even though the

acceptance provided "payable as originally drawn" or

equivalent terms; or

(iv) to the acceptor of a draft with respect to an alteration

made after the acceptance.

(2) Any person who transfers an instrument and receives consideration

warrants to his transferee and if the transfer is by indorsement to any

subsequent holder who takes the instrument in good faith that

(a) he has a good title to the instrument or is authorized to

obtain payment or acceptance on behalf of one who has a good

title and the transfer is otherwise rightful; and

(b) all signatures are genuine or authorized; and

(c) the instrument has not been materially altered; and

(d) no defense of any party is good against him; and

(e) he has no knowledge of any insolvency proceeding instituted

with respect to the maker or acceptor or the drawer of an

unaccepted instrument.

(3) By transferring "without recourse" the transferor limits the

obligation stated in subsection (2) (d) to a warranty that he has no

knowledge of such a defense.

(4) A selling agent or broker who does not disclose the fact that he

is acting only as such gives the warranties provided in this section,

but if he makes such disclosure warrants only his good faith and

authority.

Section 3--418. Finality of Payment or Acceptance.

Except for recovery of bank payments as provided in the Article on

Bank Deposits and Collections (Article 4) and except for liability for

breach of warranty on presentment under the preceding section, payment

or acceptance of any instrument is final in favor of a holder in due

course, or a person who has in good faith changed his position in

reliance on the payment.

Section 3--419. Conversion of Instrument; Innocent Representative.

(1) An instrument is converted when

(a) a drawee to whom it is delivered for acceptance refuses to

return it on demand; or

(b) any person to whom it is delivered for payment refuses on

demand either to pay or to return it; or

(c) it is paid on a forged indorsement.

(2) In an action against a drawee under subsection (1) the measure of

the drawee's liability is the face amount of the instrument. In any

other action under subsection (1) the measure of liability is presumed

to be the face amount of the instrument.

(3) Subject to the provisions of this Act concerning restrictive

indorsements a representative, including a depositary or collecting

bank, who has in good faith and in accordance with the reasonable

commercial standards applicable to the business of such representative

dealt with an instrument or its proceeds on behalf of one who was not

the true owner is not liable in conversion or otherwise to the true

owner beyond the amount of any proceeds remaining in his hands.

(4) An intermediary bank or payor bank which is not a depositary bank

is not liable in conversion solely by reason of the fact that proceeds

of an item indorsed restrictively (Sections 3--205 and 3--206) are not

paid or applied consistently with the restrictive indorsement of an

indorser other than its immediate transferor.

Section 3--501. When Presentment, Notice of Dishonor, and Protest

Necessary or Permissible.

(1) Unless excused (Section 3--511) presentment is necessary to charge

secondary parties as follows:

(a) presentment for acceptance is necessary to charge the drawer

and indorsers of a draft where the draft so provides, or is

payable elsewhere than at the residence or place of business

of the drawee, or its date of payment depends upon such

presentment. The holder may at his option present for

acceptance any other draft payable at a stated date;

(b) presentment for payment is necessary to charge any indorser;

(c) in the case of any drawer, the acceptor of a draft payable at

a bank or the maker of a note payable at a bank, presentment

for payment is necessary, but failure to make presentment

discharges such drawer, acceptor or maker only as stated in

Section 3--502 (1) (b).

(2) Unless excused (Section 3--511)

(a) notice of any dishonor is necessary to charge any indorser;

(b) in the case of any drawer, the acceptor of a draft payable at

a bank or the maker of a note payable at a bank, notice of

any dishonor is necessary, but failure to give such notice

discharges such drawer, acceptor or maker only as stated in

Section 3--502 (1) (b).

(3) Unless excused (Section 3--511) protest of any dishonor is

necessary to charge the drawer and indorsers of any draft which on its

face appears to be drawn or payable outside of the states and

territories of the United States and the District of Columbia. The

holder may at his option make protest of any dishonor of any other

instrument and in the case of a foreign draft may on insolvency of the

acceptor before maturity make protest for better security.

(4) Notwithstanding any provision of this section, neither presentment

nor notice of dishonor nor protest is necessary to charge an indorser

who has indorsed an instrument after maturity.

Section 3--502. Unexcused Delay; Discharge.

(1) Where without excuse any necessary presentment or notice of

dishonor is delayed beyond the time when it is due

(a) any indorser is discharged; and

(b) any drawer or the acceptor of a draft payable at a bank or the

maker of a note payable at a bank who because the drawee or payor bank

becomes insolvent during the delay is deprived of funds maintained with

the drawee or payor bank to cover the instrument may discharge his

liability by written assignment to the holder of his rights against the

drawee or payor bank in respect of such funds, but such drawer, acceptor

or maker is not otherwise discharged.

(2) Where without excuse a necessary protest is delayed beyond the

time when it is due any drawer or indorser is discharged.

Section 3--503. Time of Presentment.

(1) Unless a different time is expressed in the instrument the time

for any presentment is determined as follows:

(a) where an instrument is payable at or a fixed period after a

stated date any presentment for acceptance must be made on or

before the date it is payable;

(b) where an instrument is payable after sight it must either be

presented for acceptance or negotiated within a reasonable

time after date or issue whichever is later;

(c) where an instrument shows the date on which it is payable

presentment for payment is due on that date;

(d) where an instrument is accelerated presentment for payment is

due within a reasonable time after the acceleration;

(e) with respect to the liability of any secondary party

presentment for acceptance or payment of any other instrument

is due within a reasonable time after such party becomes

liable thereon.

(2) A reasonable time for presentment is determined by the nature of

the instrument, any usage of banking or trade and the facts of the

particular case. In the case of an uncertified check which is drawn and

payable within the United States and which is not a draft drawn by a

bank the following are presumed to be reasonable periods within which to

present for payment or to initiate bank collection:

(a) with respect to the liability of the drawer, thirty days

after date or issue whichever is later; and

(b) with respect to the liability of an endorser, seven days

after his indorsement.

(3) Where any presentment is due on a day which is not a full business

day for either the person making presentment or the party to pay or

accept, presentment is due on the next following day which is a full

business day for both parties.

(4) Presentment to be sufficient must be made at a reasonable hour,

and if at a bank during its banking day.

Section 3--504. How Presentment Made.

(1) Presentment is a demand for acceptance or payment made upon the

maker, acceptor, drawee or other payor by or on behalf of the holder.

(2) Presentment may be made

(a) by mail, in which event the time of presentment is determined

by the time of receipt of the mail; or

(b) through a clearing house; or

(c) at the place of acceptance or payment specified in the

instrument or if there be none at the place of business or

residence of the party to accept or pay. If neither the party

to accept or pay nor anyone authorized to act for him is

present or accessible at such place presentment is excused.

(3) It may be made

(a) to any one of two or more makers, acceptors, drawees or other

payors; or

(b) to any person who has authority to make or refuse the

acceptance or payment.

(4) A draft accepted or a note made payable at a bank in the United

States must be presented at such bank.

(5) In the cases described in Section 4--210 presentment may be made

in the manner and with the result stated in that section.

Section 3--505. Rights of Party to Whom Presentment Is Made.

(1) The party to whom presentment is made may without dishonor require

(a) exhibition of the instrument; and

(b) reasonable identification of the person making presentment

and evidence of his authority to make it if made for another;

and

(c) that the instrument be produced for acceptance or payment at

a place specified in it, or if there be none at any place

reasonable in the circumstances; and

(d) a signed receipt on the instrument for any partial or full

payment and its surrender upon full payment.

(2) Failure to comply with any such requirement invalidates the

presentment but the person presenting has a reasonable time in which to

comply and the time for acceptance or payment runs from the time of

compliance.

Section 3--506. Time Allowed for Acceptance or Payment.

(1) Acceptance may be deferred without dishonor until the close of the

next business day following presentment. The holder may also in a good

faith effort to obtain acceptance and without either dishonor of the

instrument or discharge of secondary parties allow postponement of

acceptance for an additional business day.

(2) Except as a longer time is allowed in the case of documentary

drafts drawn under a letter of credit, and unless an earlier time is

agreed to by the party to pay, payment of an instrument may be deferred

without dishonor pending reasonable examination to determine whether it

is properly payable, but payment must be made in any event before the

close of business on the day of presentment.

Section 3--507. Dishonor; Holder's Right of Recourse; Term Allowing

Re-Presentment.

(1) An instrument is dishonored when

(a) a necessary or optional presentment is duly made and due

acceptance or payment is refused or cannot be obtained within

the prescribed time or in case of bank collections the

instrument is seasonably returned by the midnight deadline

(Section 4--301); or

(b) presentment is excused and the instrument is not duly

accepted or paid.

(2) Subject to any necessary notice of dishonor and protest, the

holder has upon dishonor an immediate right of recourse against the

drawers and indorsers.

(3) Return of an instrument for lack of proper indorsement is not

dishonor.

(4) A term in a draft or an indorsement thereof allowing a stated time

for re-presentment in the event of any dishonor of the draft by

nonacceptance if a time draft or by nonpayment if a sight draft gives

the holder as against any secondary party bound by the term an option to

waive the dishonor without affecting the liability of the secondary

party and he may present again up to the end of the stated time.

Section 3--508. Notice of Dishonor.

(1) Notice of dishonor may be given to any person who may be liable on

the instrument by or on behalf of the holder or any party who has

himself received notice, or any other party who can be compelled to pay

the instrument. In addition an agent or bank in whose hands the

instrument is dishonored may give notice to his principal or customer or

to another agent or bank from which the instrument was received.

(2) Any necessary notice must be given by a bank before its midnight

deadline and by any other person before midnight of the third business

day after dishonor or receipt of notice of dishonor.

(3) Notice may be given in any reasonable manner. It may be oral or

written and in any terms which identify the instrument and state that it

has been dishonored. A misdescription which does not mislead the party

notified does not vitiate the notice. Sending the instrument bearing a

stamp, ticket or writing stating that acceptance or payment has been

refused or sending a notice of debit with respect to the instrument is

sufficient.

(4) Written notice is given when sent although it is not received.

(5) Notice to one partner is notice to each although the firm has been

dissolved.

(6) When any party is in insolvency proceedings instituted after the

issue of the instrument notice may be given either to the party or to

the representative of his estate.

(7) When any party is dead or incompetent notice may be sent to his

last known address or given to his personal representative.

(8) Notice operates for the benefit of all parties who have rights on

the instrument against the party notified.

Section 3--509. Protest; Noting for Protest.

(1) A protest is a certificate of dishonor made under the hand and

seal of a United States consul or vice consul or a notary public or

other person authorized to certify dishonor by the law of the place

where dishonor occurs. It may be made upon information satisfactory to

such person.

(2) The protest must identify the instrument and certify either that

due presentment has been made or the reason why it is excused and that

the instrument has been dishonored by nonacceptance or nonpayment.

(3) The protest may also certify that notice of dishonor has been

given to all parties or to specified parties.

(4) Subject to subsection (5) any necessary protest is due by the time

that notice of dishonor is due.

(5) If, before protest is due, an instrument has been noted for

protest by the officer to make protest, the protest may be made at any

time thereafter as of the date of the noting.

Section 3--510. Evidence of Dishonor and Notice of Dishonor.

The following are admissible as evidence and create a presumption of

dishonor and of any notice of dishonor therein shown:

(a) a document regular in form as provided in the preceding section

which purports to be a protest;

(b) the purported stamp or writing of the drawee, payor bank or

presenting bank on the instrument or accompanying it stating that

acceptance or payment has been refused for reasons consistent with

dishonor;

(c) any book or record of the drawee, payor bank, or any collecting

bank kept in the usual course of business which shows dishonor, even

though there is no evidence of who made the entry.

Section 3--511. Waived or Excused Presentment, Protest or Notice of

Dishonor or Delay Therein.

(1) Delay in presentment, protest or notice of dishonor is excused

when the party is without notice that it is due or when the delay is

caused by circumstances beyond his control and he exercises reasonable

diligence after the cause of the delay ceases to operate.

(2) Presentment or notice or protest as the case may be is entirely

excused when

(a) the party to be charged has waived it expressly or by

implication either before or after it is due; or

(b) such party has himself dishonored the instrument or has

countermanded payment or otherwise has no reason to expect or

right to require that the instrument be accepted or paid; or

(c) by reasonable diligence the presentment or protest cannot be

made or the notice given.

(3) Presentment is also entirely excused when

(a) the maker, acceptor or drawee of any instrument except a

documentary draft is dead or in insolvency proceedings

instituted after the issue of the instrument; or

(b) acceptance or payment is refused but not for want of proper

presentment.

(4) Where a draft has been dishonored by nonacceptance a later

presentment for payment and any notice of dishonor and protest for

nonpayment are excused unless in the meantime the instrument has been

accepted.

(5) A waiver of protest is also a waiver of presentment and of notice

of dishonor even though protest is not required.

(6) Where a waiver of presentment or notice or protest is embodied in

the instrument itself it is binding upon all parties; but where it is

written above the signature of an indorser it binds him only.

Section 3--601. Discharge of Parties.

(1) The extent of the discharge of any party from liability on an

instrument is governed by the sections on

(a) payment or satisfaction (Section 3--603); or

(b) tender of payment (Section 3--604); or

(c) cancellation or renunciation (Section 3--605); or

(d) impairment of right of recourse or of collateral (Section

3--606); or

(e) reacquisition of the instrument by a prior party (Section

3--208); or

(f) fraudulent and material alteration (Section 3--407); or

(g) certification of a check (Section 3--411); or

(h) acceptance varying a draft (Section 3--412); or

(i) unexcused delay in presentment or notice of dishonor or

protest (Section 3--502).

(2) Any party is also discharged from his liability on an instrument

to another party by any other act or agreement with such party which

would discharge his simple contract for the payment of money.

(3) The liability of all parties is discharged when any party who has

himself no right of action or recourse on the instrument

(a) reacquires the instrument in his own right; or

(b) is discharged under any provision of this Article, except as

otherwise provided with respect to discharge for impairment

of recourse or of collateral (Section 3--606).

Section 3--602. Effect of Discharge Against Holder in Due Course.

No discharge of any party provided by this Article is effective

against a subsequent holder in due course unless he has notice thereof

when he takes the instrument.

Section 3--603. Payment or Satisfaction.

(1) The liability of any party is discharged to the extent of his

payment or satisfaction to the holder even though it is made with

knowledge of a claim of another person to the instrument unless prior to

such payment or satisfaction the person making the claim either supplies

indemnity deemed adequate by the party seeking the discharge or enjoins

payment or satisfaction by order of a court of competent jurisdiction in

an action in which the adverse claimant and the holder are parties. This

subsection does not, however, result in the discharge of the liability

(a) of a party who in bad faith pays or satisfies a holder who

acquired the instrument by theft or who (unless having the

rights of a holder in due course) holds through one who so

acquired it; or

(b) of a party (other than an intermediary bank or a payor bank

which is not a depositary bank) who pays or satisfies the

holder of an instrument which has been restrictively indorsed

in a manner not consistent with the terms of such restrictive

indorsement.

(2) Payment or satisfaction may be made with the consent of the holder

by any person including a stranger to the instrument. Surrender of the

instrument to such a person gives him the rights of a transferee

(Section 3--201).

Section 3--604. Tender of Payment.

(1) Any party making tender of full payment to a holder when or after

it is due is discharged to the extent of all subsequent liability for

interest, costs and attorney's fees.

(2) The holder's refusal of such tender wholly discharges any party

who has a right of recourse against the party making the tender.

(3) Where the maker or acceptor of an instrument payable otherwise

than on demand is able and ready to pay at every place of payment

specified in the instrument when it is due, it is equivalent to tender.

Section 3--605. Cancellation and Renunciation.

(1) The holder of an instrument may even without consideration

discharge any party

(a) in any manner apparent on the face of the instrument or the

indorsement, as by intentionally cancelling the instrument or

the party's signature by destruction or mutilation, or by

striking out the party's signature; or

(b) by renouncing his rights by a writing signed and delivered or

by surrender of the instrument to the party to be discharged.

(2) Neither cancellation nor renunciation without surrender of the

instrument affects the title thereto.

(3) The obligation of a party to pay a check is not discharged solely

by destruction of the check in connection with a process in which

information is extracted from the check and an image of the check is

made and, subsequently, the information and image are transmitted for

payment.

Section 3--606. Impairment of Recourse or of Collateral.

(1) The holder discharges any party to the instrument to the extent

that without such party's consent the holder

(a) without express reservation of rights releases or agrees not

to sue any person against whom the party has to the knowledge

of the holder a right of recourse or agrees to suspend the

right to enforce against such person the instrument or

collateral or otherwise discharges such person, except that

failure or delay in effecting any required presentment,

protest or notice of dishonor with respect to any such person

does not discharge any party as to whom presentment, protest

or notice of dishonor is effective or unnecessary; or

(b) unjustifiably impairs any collateral for the instrument given

by or on behalf of the party or any person against whom he

has a right of recourse.

(2) By express reservation of rights against a party with a right of

recourse the holder preserves

(a) all his rights against such party as of the time when the

instrument was originally due; and

(b) the right of the party to pay the instrument as of that time;

and

(c) all rights of such party to recourse against others.

Section 3--701. Letter of Advice of International Sight Draft.

(1) A "letter of advice" is a drawer's communication to the drawee

that a described draft has been drawn.

(2) Unless otherwise agreed when a bank receives from another bank a

letter of advice of an international sight draft the drawee bank may

immediately debit the drawer's account and stop the running of interest

pro tanto. Such a debit and any resulting credit to any account covering

outstanding drafts leaves in the drawer full power to stop payment or

otherwise dispose of the amount and creates no trust or interest in

favor of the holder.

(3) Unless otherwise agreed and except where a draft is drawn under a

credit issued by the drawee, the drawee of an international sight draft

owes the drawer no duty to pay an unadvised draft but if it does so and

the draft is genuine, may appropriately debit the drawer's account.

Section 3--801. Drafts in a Set.

(1) Where a draft is drawn in a set of parts, each of which is

numbered and expressed to be an order only if no other part has been

honored, the whole of the parts constitutes one draft but a taker of any

part may become a holder in due course of the draft.

(2) Any person who negotiates, indorses or accepts a single part of a

draft drawn in a set thereby becomes liable to any holder in due course

of that part as if it were the whole set, but as between different

holders in due course to whom different parts have been negotiated the

holder whose title first accrues has all rights to the draft and its

proceeds.

(3) As against the drawee the first presented part of a draft drawn in

a set is the part entitled to payment, or if a time draft to acceptance

and payment. Acceptance of any subsequently presented part renders the

drawee liable thereon under subsection (2). With respect both to a

holder and to the drawer payment of a subsequently presented part of a

draft payable at sight has the same effect as payment of a check

notwithstanding an effective stop order (Section 4--407).

(4) Except as otherwise provided in this section, where any part of a

draft in a set is discharged by payment or otherwise the whole draft is

discharged.

Section 3--802. Effect of Instrument on Obligation for Which It Is

Given.

(1) Unless otherwise agreed where an instrument is taken for an

underlying obligation

(a) the obligation is pro tanto discharged if a bank is drawer,

maker or acceptor of the instrument and there is no recourse

on the instrument against the underlying obligor; and

(b) in any other case the obligation is suspended pro tanto until

the instrument is due or if it is payable on demand until its

presentment. If the instrument is dishonored action may be

maintained on either the instrument or the obligation;

discharge of the underlying obligor on the instrument also

discharges him on the obligation.

(2) The taking in good faith of a check which is not postdated does

not of itself so extend the time on the original obligation as to

discharge a surety.

Section 3--803. Notice to Third Party.

Where a defendant is sued for breach of an obligation for which a

third person is answerable over under this Article he may give the third

person written notice of the litigation, and the person notified may

then give similar notice to any other person who is answerable over to

him under this Article. If the notice states that the person notified

may come in and defend and that if the person notified does not do so he

will in any action against him by the person giving the notice be bound

by any determination of fact common to the two litigations, then unless

after seasonable receipt of the notice the person notified does come in

and defend he is so bound.

Section 3--804. Lost, Destroyed or Stolen Instruments.

The owner of an instrument which is lost, whether by destruction,

theft or otherwise, may maintain an action in his own name and recover

from any party liable thereon upon due proof of his ownership, the facts

which prevent his production of the instrument and its terms. The court

shall require security, in an amount fixed by the court not less than

twice the amount allegedly unpaid on the instrument, indemnifying the

defendant, his heirs, personal representatives, successors and assigns

against loss, including costs and expenses, by reason of further claims

on the instrument, but this provision does not apply where an action is

prosecuted or defended by the state or by a public officer in its

behalf.

Section 3--805. Instruments Not Payable to Order or to Bearer.

This Article applies to any instrument whose terms do not preclude

transfer and which is otherwise negotiable within this Article but which

is not payable to order or to bearer, except that there can be no holder

in due course of such an instrument.

Section 4--101. Short Title.

This Article shall be known and may be cited as Uniform Commercial

Code--Bank Deposits and Collections.

Section 4--102. Applicability.

(1) To the extent that items within this Article are also within the

scope of Articles 3 and 8, they are subject to the provisions of those

Articles. In the event of conflict the provisions of this Article govern

those of Article 3 but the provisions of Article 8 govern those of this

Article.

(2) The liability of a bank for action or non-action with respect to

any item handled by it for purposes of presentment, payment or

collection is governed by the law of the place where the bank is

located. In the case of action or non-action by or at a branch or

separate office of a bank, its liability is governed by the law of the

place where the branch or separate office is located.

Section 4--103. Variation by Agreement; Measure of Damages; Certain

Action Constituting Ordinary Care.

(1) The effect of the provisions of this Article may be varied by

agreement except that no agreement can disclaim a bank's responsibility

for its own lack of good faith or failure to exercise ordinary care or

can limit the measure of damages for such lack or failure; but the

parties may by agreement determine the standards by which such

responsibility is to be measured if such standards are not manifestly

unreasonable.

(2) Federal Reserve regulations and operating letters, clearing house

rules, and the like, have the effect of agreements under subsection (1),

whether or not specifically assented to by all parties interested in

items handled.

(3) Action or non-action approved by this Article or pursuant to

Federal Reserve regulations or operating letters constitutes the

exercise of ordinary care and, in the absence of special instructions,

action or non-action consistent with clearing house rules and the like

or with a general banking usage not disapproved by this Article, prima

facie constitutes the exercise of ordinary care.

(4) The specification or approval of certain procedures by this

Article does not constitute disapproval of other procedures which may be

reasonable under the circumstances.

(5) The measure of damages for failure to exercise ordinary care in

handling an item is the amount of the item reduced by an amount which

could not have been realized by the use of ordinary care, and where

there is bad faith it includes other damages, if any, suffered by the

party as a proximate consequence.

Definitions and Index of Definitions.

(1) In this Article unless the context otherwise requires

(a) "Account" means any account with a bank and includes a

checking, time, interest or savings account;

(b) "Afternoon" means the period of a day between noon and

midnight;

(c) "Banking day" means that part of any day on which a bank is

open to the public for carrying on substantially all of its

banking functions;

(d) "Clearing house" means any association of banks or other

payors regularly clearing items;

(e) "Customer" means any person having an account with a bank or

for whom a bank has agreed to collect items and includes a

bank carrying an account with another bank;

(f) "Documentary draft" means any negotiable or non-negotiable

draft with accompanying documents, securities or other papers

to be delivered against honor of the draft;

(g) "Item" means any instrument for the payment of money even

though it is not negotiable but does not include money;

(h) "Midnight deadline" with respect to a bank is midnight on its

next banking day following the banking day on which it

receives the relevant item or notice or from which the time

for taking action commences to run, whichever is later;

(i) "Obligated bank" means the acceptor of a certified check, the

issuer of a cashier's check, or the drawer of a teller's

check;

(j) "Properly payable" includes the availability of funds for

payment at the time of decision to pay or dishonor;

(k) "Remitter" means the buyer from the obligated bank of a

cashier's check or a teller's check, and the drawer of a

certified check;

(l) "Settle" means to pay in cash, by clearing house settlement,

in a charge or credit or by remittance, or otherwise as

instructed. A settlement may be either provisional or final;

(m) "Suspends payments" with respect to a bank means that it has

been closed by order of the supervisory authorities, that a

public officer has been appointed to take it over or that it

ceases or refuses to make payments in the ordinary course of

business.

(2) Other definitions applying to this Article and the sections in

which they appear are:

"Collecting bank" Section 4--105.

"Depositary bank" Section 4--105.

"Intermediary bank" Section 4--105.

"Payor bank" Section 4--105.

"Presenting bank" Section 4--105.

"Remitting bank" Section 4--105.

(3) The following definitions in other Articles apply to this Article:

"Acceptance" Section 3--410.

"Certificate of deposit" Section 3--104.

"Certification" Section 3--411.

"Check" Section 3--104.

"Draft" Section 3--104.

"Holder in due course" Section 3--302.

"Notice of dishonor" Section 3--508.

"Presentment" Section 3--504.

"Protest" Section 3--509.

"Secondary party" Section 3--102.

(4) In addition Article 1 contains general definitions and principles

of construction and interpretation applicable throughout this Article.

Section 4--105. "Depositary Bank"; "Intermediary Bank"; "Collecting

Bank"; "Payor Bank"; "Presenting Bank"; "Remitting

Bank".

In this Article unless the context otherwise requires:

(a) "Depositary bank" means the first bank to which an item is

transferred for collection even though it is also the payor bank;

(b) "Payor bank" means a bank by which an item is payable as drawn or

accepted;

(c) "Intermediary bank" means any bank to which an item is transferred

in course of collection except the depositary or payor bank;

(d) "Collecting bank" means any bank handling the item for collection

except the payor bank;

(e) "Presenting bank" means any bank presenting an item except a payor

bank;

(f) "Remitting bank" means any payor or intermediary bank remitting

for an item.

Section 4--106. Separate Office of a Bank.

A branch or separate office of a bank is a separate bank for the

purpose of computing the time within which and determining the place at

or to which action may be taken or notices or orders shall be given

under this Article and under Article 3. The receipt of any notice or

order by or the knowledge of one branch or separate office of a bank is

not actual or constructive notice to or knowledge of any other branch or

office of the same bank and does not impair the right of another branch

or office to be a holder in due course of an item.

Section 4--107. Time of Receipt of Items.

(1) For the purpose of allowing time to process items, prove balances

and make the necessary entries on its books to determine its position

for the day, a bank may fix an afternoon hour of two P.M. or later as a

cut-off hour for the handling of money and items and the making of

entries on its books.

(2) Any item or deposit of money received on any day after a cut-off

hour so fixed or after the close of the banking day may be treated as

being received at the opening of the next banking day.

Section 4--108. Delays.

(1) Unless otherwise instructed, a collecting bank in a good faith

effort to secure payment may, in the case of specific items and with or

without the approval of any person involved, waive, modify or extend

time limits imposed or permitted by this Act for a period not in excess

of an additional banking day without discharge of secondary parties and

without liability to its transferor or any prior party.

(2) Delay by a collecting bank or payor bank beyond time limits

prescribed or permitted by this Act or by instructions is excused if

caused by interruption of communication facilities, suspension of

payments by another bank, war, emergency conditions or other

circumstances beyond the control of the bank provided it exercises such

diligence as the circumstances require.

Section 4--109. Process of Posting.

The "process of posting" means the usual procedure followed by a payor

bank in determining to pay an item and in recording the payment

including one or more of the following or other steps as determined by

the bank:

(a) verification of any signature;

(b) ascertaining that sufficient funds are available;

(c) affixing a "paid" or other stamp;

(d) entering a charge or entry to a customer's account;

(e) correcting or reversing an entry or erroneous action with respect

to the item.

Section 4--201. Presumption and Duration of Agency Status of Collecting

Banks and Provisional Status of Credits; Applicability

of Article; Item Indorsed "Pay Any Bank".

(1) Unless a contrary intent clearly appears and prior to the time

that a settlement given by a collecting bank for an item is or becomes

final (subsection (3) of Section 4--211 and Sections 4--212 and 4--213)

the bank is an agent or sub-agent of the owner of the item and any

settlement given for the item is provisional. This provision applies

regardless of the form of indorsement or lack of indorsement and even

though credit given for the item is subject to immediate withdrawal as

of right or is in fact withdrawn; but the continuance of ownership of an

item by its owner and any rights of the owner to proceeds of the item

are subject to rights of a collecting bank such as those resulting from

outstanding advances on the item and valid rights of setoff. When an

item is handled by banks for purposes of presentment, payment and

collection, the relevant provisions of this Article apply even though

action of parties clearly establishes that a particular bank has

purchased the item and is the owner of it.

(2) After an item has been indorsed with the words "pay any bank" or

the like, only a bank may acquire the rights of a holder

(a) until the item has been returned to the customer initiating

collection; or

(b) until the item has been specially indorsed by a bank to a

person who is not a bank.

Section 4--202. Responsibility for Collection; When Action Seasonable.

(1) A collecting bank must use ordinary care in

(a) presenting an item or sending it for presentment; and

(b) sending notice of dishonor or non-payment or returning an

item other than a documentary draft to the bank's transferor

or directly to the depositary bank under subsection (2) of

Section 4--212 after learning that the item has not been paid

or accepted, as the case may be; and

(c) settling for an item when the bank receives final settlement;

and

(d) making or providing for any necessary protest; and

(e) notifying its transferor of any loss or delay in transit

within a reasonable time after discovery thereof.

(2) A collecting bank taking proper action before its midnight

deadline following receipt of an item, notice or payment acts

seasonably; taking proper action within a reasonably longer time may be

seasonable but the bank has the burden of so establishing.

(3) Subject to subsection (1) (a), a bank is not liable for the

insolvency, neglect, misconduct, mistake or default of another bank or

person or for loss or destruction of an item in transit or in the

possession of others.

Section 4--203. Effect of Instructions.

Subject to the provisions of Article 3 concerning conversion of

instruments (Section 3--419) and the provisions of both Article 3 and

this Article concerning restrictive indorsements only a collecting

bank's transferor can give instructions which affect the bank or

constitute notice to it and a collecting bank is not liable to prior

parties for any action taken pursuant to such instructions or in

accordance with any agreement with its transferor.

Section 4--204. Methods of Sending and Presenting; Sending Direct to

Payor Bank.

(1) A collecting bank must send items by reasonably prompt method

taking into consideration any relevant instructions, the nature of the

item, the number of such items on hand, and the cost of collection

involved and the method generally used by it or others to present such

items.

(2) A collecting bank may send

(a) any item direct to the payor bank;

(b) any item to any non-bank payor if authorized by its

transferor; and

(c) any item other than documentary drafts to any non-bank payor,

if authorized by Federal Reserve regulation or operating

letter, clearing house rule or the like.

(3) Presentment may be made by a presenting bank at a place where the

payor bank has requested that presentment be made.

Section 4--205. Supplying Missing Indorsement; No Notice From Prior

Indorsement.

(1) A depositary bank which has taken an item for collection may

supply any indorsement of the customer which is necessary to title

unless the item contains the words "payee's indorsement required" or the

like. In the absence of such a requirement a statement placed on the

item by the depositary bank to the effect that the item was deposited by

a customer or credited to his account is effective as the customer's

indorsement.

(2) An intermediary bank, or payor bank which is not a depositary

bank, is neither given notice nor otherwise affected by a restrictive

indorsement of any person except the bank's immediate transferor.

Section 4--206. Transfer Between Banks.

Any agreed method which identifies the transferor bank is sufficient

for the item's further transfer to another bank.

Section 4--207. Warranties of Customer and Collecting Bank on Transfer

or Presentment of Items; Time for Claims.

(1) Each customer or collecting bank who obtains payment or acceptance

of an item and each prior customer and collecting bank warrants to the

payor bank or other payor who in good faith pays or accepts the item

that

(a) he has a good title to the item or is authorized to obtain

payment or acceptance on behalf of one who has a good title;

and

(b) he has no knowledge that the signature of the maker or drawer

is unauthorized, except that this warranty is not given by

any customer or collecting bank that is a holder in due

course and acts in good faith

(i) to a maker with respect to the maker's own signature; or

(ii) to a drawer with respect to the drawer's own signature,

whether or not the drawer is also the drawee; or

(iii) to an acceptor of an item if the holder in due course

took the item after the acceptance or obtained the

acceptance without knowledge that the drawer's signature

was unauthorized; and

(c) the item has not been materially altered, except that this

warranty is not given by any customer or collecting bank that

is a holder in due course and acts in good faith

(i) to the maker of a note; or

(ii) to the drawer of a draft whether or not the drawer is

also the drawee; or

(iii) to the acceptor of an item with respect to an alteration

made prior to the acceptance if the holder in due course

took the item after the acceptance, even though the

acceptance provided "payable as originally drawn" or

equivalent terms; or

(iv) to the acceptor of an item with respect to an alteration

made after the acceptance.

(2) Each customer and collecting bank who transfers an item and

receives a settlement or other consideration for it warrants to his

transferee and to any subsequent collecting bank who takes the item in

good faith that

(a) he has a good title to the item or is authorized to obtain

payment or acceptance on behalf of one who has a good title

and the transfer is otherwise rightful; and

(b) all signatures are genuine or authorized; and (c) the item

has not been materially altered; and

(d) no defense of any party is good against him; and

(e) he has no knowledge of any insolvency proceeding instituted

with respect to the maker or acceptor or the drawer of an

unaccepted item.

In addition each customer and collecting bank so transferring an item

and receiving a settlement or other consideration engages that upon

dishonor and any necessary notice of dishonor and protest he will take

up the item.

(3) The warranties and the engagement to honor set forth in the two

preceding subsections arise notwithstanding the absence of indorsement

or words of guaranty or warranty in the transfer or presentment and a

collecting bank remains liable for their breach despite remittance to

its transferor. Damages for breach of such warranties or engagement to

honor shall not exceed the consideration received by the customer or

collecting bank responsible plus finance charges and expenses related to

the item, if any

(4) Unless a claim for breach of warranty under this section is made

within a reasonable time after the person claiming learns of the breach,

the person liable is discharged to the extent of any loss caused by the

delay in making claim.

Section 4--208. Security Interest of Collecting Bank in Items,

Accompanying Documents and Proceeds.

(1) A bank has a security interest in an item and any accompanying

documents or the proceeds of either

(a) in case of an item deposited in an account to the extent to

which credit given for the item has been withdrawn or

applied;

(b) in case of an item for which it has given credit available

for withdrawal as of right, to the extent of the credit given

whether or not the credit is drawn upon and whether or not

there is a right of charge-back; or

(c) if it makes an advance on or against the item.

(2) When credit which has been given for several items received at one

time or pursuant to a single agreement is withdrawn or applied in part

the security interest remains upon all the items, any accompanying

documents or the proceeds of either. For the purpose of this section,

credits first given are first withdrawn.

(3) Receipt by a collecting bank of a final settlement for an item is

a realization on its security interest in the item, accompanying

documents and proceeds. To the extent and so long as the bank does not

receive final settlement for the item or give up possession of the item

or accompanying documents for purposes other than collection, the

security interest continues and is subject to the provisions of Article

9 except that

(a) no security agreement is necessary to make the security

interest enforceable ( Section 9--203 (b)(3)(A)); and

(b) no filing is required to perfect the security interest; and

(c) the security interest has priority over conflicting perfected

security interests in the item, accompanying documents or

proceeds.

Section 4--209. When Bank Gives Value for Purposes of Holder in Due

Course.

For purposes of determining its status as a holder in due course, the

bank has given value to the extent that it has a security interest in an

item provided that the bank otherwise complies with the requirements of

Section 3--302 on what constitutes a holder in due course.

Section 4--210. Presentment by Notice of Item Not Payable by, Through or

at a Bank; Liability of Secondary Parties.

(1) Unless otherwise instructed, a collecting bank may present an item

not payable by, through or at a bank by sending to the party to accept

or pay a written notice that the bank holds the item for acceptance or

payment. The notice must be sent in time to be received on or before the

day when presentment is due and the bank must meet any requirement of

the party to accept or pay under Section 3--505 by the close of the

bank's next banking day after it knows of the requirement.

(2) Where presentment is made by notice and neither honor nor request

for compliance with a requirement under Section 3--505 is received by

the close of business on the day after maturity or in the case of demand

items by the close of business on the third banking day after notice was

sent, the presenting bank may treat the item as dishonored and charge

any secondary party by sending him notice of the facts.

Section 4--211. Media of Remittance; Provisional and Final Settlement in

Remittance Cases.

(1) A collecting bank may take in settlement of an item

(a) a check of the remitting bank or of another bank on any bank

except the remitting bank; or

(b) a cashier's check or similar primary obligation of a

remitting bank which is a member of or clears through a

member of the same clearing house or group as the collecting

bank; or

(c) appropriate authority to charge an account of the remitting

bank or of another bank with the collecting bank; or

(d) if the item is drawn upon or payable by a person other than a

bank, a cashier's check, certified check or other bank check

or obligation.

(2) If before its midnight deadline the collecting bank properly

dishonors a remittance check or authorization to charge on itself or

presents or forwards for collection a remittance instrument of or on

another bank which is of a kind approved by subsection (1) or has not

been authorized by it, the collecting bank is not liable to prior

parties in the event of the dishonor of such check, instrument or

authorization.

(3) A settlement for an item by means of a remittance instrument or

authorization to charge is or becomes a final settlement as to both the

person making and the person receiving the settlement

(a) if the remittance instrument or authorization to charge is of

a kind approved by subsection (1) or has not been authorized

by the person receiving the settlement and in either case the

person receiving the settlement acts seasonably before its

midnight deadline in presenting, forwarding for collection or

paying the instrument or authorization,--at the time the

remittance instrument or authorization is finally paid by the

payor by which it is payable;

(b) if the person receiving the settlement has authorized

remittance by a non-bank check or obligation or by a

cashier's check or similar primary obligation of or a check

upon the payor or other remitting bank which is not of a kind

approved by subsection (1) (b),--at the time of the receipt

of such remittance check or obligation; or

(c) if in a case not covered by sub-paragraphs (a) or (b) the

person receiving the settlement fails to seasonably present,

forward for collection, pay or return a remittance instrument

or authorization to it to charge before its midnight

deadline,--at such midnight deadline.

Section 4--212. Right of Charge-Back or Refund.

(1) If a collecting bank has made provisional settlement with its

customer for an item and itself fails by reason of dishonor, suspension

of payments by a bank or otherwise to receive a settlement for the item

which is or becomes final, the bank may revoke the settlement given by

it, charge back the amount of any credit given for the item to its

customer's account or obtain refund from its customer whether or not it

is able to return the items if by its midnight deadline or within a

longer reasonable time after it learns the facts it returns the item or

sends notification of the facts. These rights to revoke, charge-back and

obtain refund terminate if and when a settlement for the item received

by the bank is or becomes final (subsection (3) of Section 4--211 and

subsections (2) and (3) of Section 4--213).

(2) Within the time and manner prescribed by this section and Section

4--301, an intermediary or payor bank, as the case may be, may return an

unpaid item directly to the depositary bank and may send for collection

a draft on the depositary bank and obtain reimbursement. In such case,

if the depositary bank has received provisional settlement for the item,

it must reimburse the bank drawing the draft and any provisional credits

for the item between banks shall become and remain final.

(3) A depositary bank which is also the payor may charge-back the

amount of an item to its customer's account or obtain refund in

accordance with the section governing return of an item received by a

payor bank for credit on its books (Section 4--301).

(4) The right to charge-back is not affected by

(a) prior use of the credit given for the item; or

(b) failure by any bank to exercise ordinary care with respect to

the item but any bank so failing remains liable.

(5) A failure to charge-back or claim refund does not affect other

rights of the bank against the customer or any other party.

(6) If credit is given in dollars as the equivalent of the value of an

item payable in a foreign currency the dollar amount of any charge-back

or refund shall be calculated on the basis of the buying sight rate for

the foreign currency prevailing on the day when the person entitled to

the charge-back or refund learns that it will not receive payment in

ordinary course.

Section 4--213. Final Payment of Item by Payor Bank; When Provisional

Debits and Credits Become Final; When Certain Credits

Become Available for Withdrawal.

(1) An item is finally paid by a payor bank when the bank has done any

of the following, whichever happens first:

(a) paid the item in cash; or

(b) settled for the item without reserving a right to revoke the

settlement and without having such right under statute,

clearing house rule or agreement; or

(c) completed the process of posting the item to the indicated

account of the drawer, maker or other person to be charged

therewith; or

(d) made a provisional settlement for the item and failed to

revoke the settlement in the time and manner permitted by

statute, clearing house rule or agreement.

Upon a final payment under subparagraphs (b), (c) or (d) the payor bank

shall be accountable for the amount of the item.

(2) If provisional settlement for an item between the presenting and

payor banks is made through a clearing house or by debits or credits in

an account between them, then to the extent that provisional debits or

credits for the item are entered in accounts between the presenting and

payor banks or between the presenting and successive prior collecting

banks seriatim, they become final upon final payment of the item by the

payor bank.

(3) If a collecting bank receives a settlement for an item which is or

becomes final (subsection (3) of Section 4--211, subsection (2) of

Section 4--213) the bank is accountable to its customer for the amount

of the item and any provisional credit given for the item in an account

with its customer becomes final.

(4) Subject to any right of the bank to apply the credit to an

obligation of the customer, credit given by a bank for an item in an

account with its customer becomes available for withdrawal as of right

(a) in any case where the bank has received a provisional

settlement for the item,--when such settlement becomes final

and the bank has had a reasonable time to learn that the

settlement is final;

(b) in any case where the bank is both a depositary bank and a

payor bank and the item is finally paid,--at the opening of

the bank's second banking day following receipt of the item.

(5) A deposit of money in a bank is final when made but, subject to

any right of the bank to apply the deposit to an obligation of the

customer, the deposit becomes available for withdrawal as of right at

the opening of the bank's next banking day following receipt of the

deposit.

Section 4--214. Insolvency and Preference.

(1) Any item in or coming into the possession of a payor or collecting

bank which suspends payment and which item is not finally paid shall be

returned by the receiver, trustee or agent in charge of the closed bank

to the presenting bank or the closed bank's customer.

(2) If a payor bank finally pays an item and suspends payments without

making a settlement for the item with its customer or the presenting

bank which settlement is or becomes final, the owner of the item has a

preferred claim against the payor bank.

(3) If a payor bank gives or a collecting bank gives or receives a

provisional settlement for an item and thereafter suspends payments, the

suspension does not prevent or interfere with the settlement becoming

final if such finality occurs automatically upon the lapse of certain

time or the happening of certain events (subsection (3) of Section

4--211, subsections (1) (d), (2) and (3) of Section 4--213).

(4) If a collecting bank receives from subsequent parties settlement

for an item which settlement is or becomes final and suspends payments

without making a settlement for the item with its customer which is or

becomes final, the owner of the item has a preferred claim against such

collecting bank.

Section 4--301. Deferred Posting; Recovery of Payment by Return of

Items; Time of Dishonor.

(1) Where an authorized settlement for a demand item (other than a

documentary draft) received by a payor bank otherwise than for immediate

payment over the counter has been made before midnight of the banking

day of receipt the payor bank may revoke the settlement and recover any

payment if before it has made final payment (subsection (1) of Section

4--213) and before its midnight deadline it

(a) returns the item; or

(b) sends written notice of dishonor or nonpayment if the item is

held for protest or is otherwise unavailable for return.

(2) If a demand item is received by a payor bank for credit on its

books it may return such item or send notice of dishonor and may revoke

any credit given or recover the amount thereof withdrawn by its

customer, if it acts within the time limit and in the manner specified

in the preceding subsection.

(3) Unless previous notice of dishonor has been sent an item is

dishonored at the time when for purposes of dishonor it is returned or

notice sent in accordance with this section.

(4) An item is returned:

(a) as to an item received through a clearing house, when it is

delivered to the presenting or last collecting bank or to the

clearing house or is sent or delivered in accordance with its

rules; or

(b) in all other cases, when it is sent or delivered to the

bank's customer or transferor or pursuant to his

instructions.

Section 4--302. Payor Bank's Responsibility for Late Return of Item.

In the absence of a valid defense such as breach of a presentment

warranty (subsection (1) of Section 4--207), settlement effected or the

like, if an item is presented on and received by a payor bank the bank

is accountable for the amount of

(a) a demand item other than a documentary draft whether properly

payable or not if the bank, in any case where it is not also

the depositary bank, retains the item beyond midnight of the

banking day of receipt without settling for it or, regardless

of whether it is also the depositary bank, does not pay or

return the item or send notice of dishonor until after its

midnight deadline; or

(b) any other properly payable item unless within the time

allowed for acceptance or payment of that item the bank

either accepts or pays the item or returns it and

accompanying documents.

Section 4--303. When Items Subject to Notice, Stop-Order, Legal Process

or Setoff; Order in Which Items May Be Charged or

Certified.

(1) Any knowledge, notice or stop-order received by, legal process

served upon or setoff exercised by a payor bank, whether or not

effective under other rules of law to terminate, suspend or modify the

bank's right or duty to pay an item or to charge its customer's account

for the item, comes too late to so terminate, suspend or modify such

right or duty if the knowledge, notice, stop-order or legal process is

received or served and a reasonable time for the bank to act thereon

expires or the setoff is exercised after the bank has done any of the

following:

(a) accepted or certified the item;

(b) paid the item in cash;

(c) settled for the item without reserving a right to revoke the

settlement and without having such right under statute,

clearing house rule or agreement;

(d) completed the process of posting the item to the indicated

account of the drawer, maker or other person to be charged

therewith or otherwise has evidenced by examination of such

indicated account and by action its decision to pay the item;

or

(e) become accountable for the amount of the item under

subsection (1) (d) of Section 4--213 and Section 4--302

dealing with the payor bank's responsibility for late return

of items.

(2) Subject to the provisions of subsection (1) items may be accepted,

paid, certified or charged to the indicated account of its customer in

any order convenient to the bank.

Section 4--401. When Bank May Charge Customer's Account.

(1) As against its customer, a bank may charge against his account any

item which is otherwise properly payable from that account even though

the charge creates an overdraft.

(2) A bank which in good faith makes payment to a holder may charge

the indicated account of its customer according to

(a) the original tenor of his altered item; or

(b) the tenor of his completed item, even though the bank knows

the item has been completed unless the bank has notice that

the completion was improper.

Section 4--402. Bank's Liability to Customer for Wrongful Dishonor.

A payor bank is liable to its customer for damages proximately caused

by the wrongful dishonor of an item. When the dishonor occurs through

mistake liability is limited to actual damages proved. If so proximately

caused and proved damages may include damages for an arrest or

prosecution of the customer or other consequential damages. Whether any

consequential damages are proximately caused by the wrongful dishonor is

a question of fact to be determined in each case.

Section 4--403. Customer's Right to Stop Payment; Burden of Proof of

Loss.

(1) A customer may by order to his bank stop payment of any item

payable for his account but the order must be received at such time and

in such manner as to afford the bank a reasonable opportunity to act on

it prior to any action by the bank with respect to the item described in

Section 4--303.

(2) A remitter or payee of a cashier's check or certified check may by

order to the obligated bank stop payment of such a check, and a remitter

or payee of a teller's check may order the obligated bank to order the

payor bank to stop payment of such a check, at any time after ninety

days from the date of issuance of either a cashier's check or teller's

check, and date of certification of a certified check. The stop payment

is effective if either the remitter or payee delivers to the obligated

bank at a time and in a manner affording a reasonable opportunity to act

before any of the actions described in Section 4--303 (1) are taken: (i)

a written order to stop payment, which shall describe the item with

reasonable certainty, and (ii) an affidavit of the remitter or payee

containing an averment that the check was destroyed, its whereabouts

cannot be determined, or it is in the wrongful possession of an unknown

person or a person that cannot be found or is not amenable to service of

process.

(3) An oral order is binding upon the bank only for fourteen calendar

days unless confirmed in writing within that period. A written order is

effective for only six months unless renewed in writing.

(4) The burden of establishing the fact and amount of loss resulting

from the payment of an item contrary to a binding stop payment order is

on the customer, remitter or payee.

Section 4--404. Bank Not Obligated to Pay Check More Than Six Months

Old.

A bank is under no obligation to a customer having a checking account

to pay a check, other than a certified check, which is presented more

than six months after its date, but it may charge its customer's account

for a payment made thereafter in good faith.

Section 4--405. Death or Incompetence of Customer.

(1) A payor or collecting bank's authority to accept, pay or collect

an item or to account for proceeds of its collection if otherwise

effective is not rendered ineffective by incompetence of a customer of

either bank existing at the time the item is issued or its collection is

undertaken if the bank does not know of an adjudication of incompetence.

Neither death nor incompetence of a customer revokes such authority to

accept, pay, collect or account until the bank knows of the fact of

death or of an adjudication of incompetence and has reasonable

opportunity to act on it.

(2) Even with knowledge a bank may for ten days after the date of

death pay or certify checks drawn on or prior to that date unless

ordered to stop payment by a person claiming an interest in the account.

Section 4--406. Customer's Duty to Discover and Report Unauthorized

Signature or Alteration.

(1) When a bank sends to its customer a statement of account

accompanied by items paid in good faith in support of the debit entries

or holds the statement and items pursuant to a request or instructions

of its customer or otherwise in a reasonable manner makes the statement

and items available to the customer, the customer must exercise

reasonable care and promptness to examine the statement and items to

discover his unauthorized signature or any alteration on an item and

must notify the bank promptly after discovery thereof.

(2) If the bank establishes that the customer failed with respect to

an item to comply with the duties imposed on the customer by subsection

(1) the customer is precluded from asserting against the bank

(a) his unauthorized signature or any alteration on the item if

the bank also establishes that it suffered a loss by reason

of such failure; and

(b) an unauthorized signature or alteration by the same wrongdoer

on any other item paid in good faith by the bank after the

first item and statement was available to the customer for a

reasonable period not exceeding fourteen calendar days and

before the bank receives notification from the customer of

any such unauthorized signature or alteration.

(3) The preclusion under subsection (2) does not apply if the customer

establishes lack of ordinary care on the part of the bank in paying the

item(s).

(4) Without regard to care or lack of care of either the customer or

the bank a customer who does not within one year from the time the

statement and items are made available to the customer (subsection (1))

discover and report his unauthorized signature or any alteration on the

face or back of the item or does not within three years from that time

discover and report any unauthorized indorsement is precluded from

asserting against the bank such unauthorized signature or indorsement or

such alteration.

(5) If under this section a payor bank has a valid defense against a

claim of a customer upon or resulting from payment of an item and waives

or fails upon request to assert the defense the bank may not assert

against any collecting bank or other prior party presenting or

transferring the item a claim based upon the unauthorized signature or

alteration giving rise to the customer's claim.

Section 4--407. Payor Bank's Right to Subrogation on Improper Payment.

If a payor bank has paid an item over the stop payment order of the

drawer or maker or otherwise under circumstances giving a basis for

objection by the drawer or maker, to prevent unjust enrichment and only

to the extent necessary to prevent loss to the bank by reason of its

payment of the item, the payor bank shall be subrogated to the rights

(a) of any holder in due course on the item against the drawer or

maker; and

(b) of the payee or any other holder of the item against the

drawer or maker either on the item or under the transaction

out of which the item arose; and

(c) of the drawer or maker against the payee or any other holder

of the item with respect to the transaction out of which the

item arose.

Section 4--408. Rights and Liabilities of Remitter or Payee With Respect

to Cashier's Check, Teller's Check and Certified

Check.

(1) This section applies if a cashier's check, teller's check or

certified check is not presented for payment on or before ninety days

from the date of issuance of a cashier's check or teller's check, or the

date of certification of a certified check.

(2) The remitter or payee that causes payment of a cashier's check,

teller's check or certified check to be stopped pursuant to Section

4--403 (2) engages that upon dishonor of the check and any necessary

notice of dishonor he will pay, subject to defenses, the amount of the

check to any subsequent holder or indorser who takes it up.

(3) When a stop payment order pursuant to Section 4--403 (2) becomes

effective the obligated bank shall refund the amount of the item to the

remitter or payee that issued the stop payment order, and shall have no

further liability on the item.

Section 4--501. Handling of Documentary Drafts; Duty to Send for

Presentment and to Notify Customer of Dishonor.

A bank which takes a documentary draft for collection must present or

send the draft and accompanying documents for presentment and upon

learning that the draft has not been paid or accepted in due course must

seasonably notify its customer of such fact even though it may have

discounted or bought the draft or extended credit available for

withdrawal as of right.

Section 4--502. Presentment of "On Arrival" Drafts.

When a draft or the relevant instructions require presentment "on

arrival", "when goods arrive" or the like, the collecting bank need not

present until in its judgment a reasonable time for arrival of the goods

has expired. Refusal to pay or accept because the goods have not arrived

is not dishonor; the bank must notify its transferor of such refusal but

need not present the draft again until it is instructed to do so or

learns of the arrival of the goods.

Section 4--503. Responsibility of Presenting Bank for Documents and

Goods; Report of Reasons for Dishonor; Referee in Case

of Need.

Unless otherwise instructed and except as provided in Article 5 a bank

presenting a documentary draft

(a) must deliver the documents to the drawee on acceptance of the

draft if it is payable more than three days after presentment;

otherwise, only on payment; and

(b) upon dishonor, either in the case of presentment for acceptance or

presentment for payment, may seek and follow instructions from any

referee in case of need designated in the draft or if the presenting

bank does not choose to utilize his services it must use diligence and

good faith to ascertain the reason for dishonor, must notify its

transferor of the dishonor and of the results of its effort to ascertain

the reasons therefor and must request instructions.

But the presenting bank is under no obligation with respect to goods

represented by the documents except to follow any reasonable

instructions seasonably received; it has a right to reimbursement for

any expense incurred in following instructions and to prepayment of or

indemnity for such expenses.

Section 4--504. Privilege of Presenting Bank to Deal With Goods;

Security Interest for Expenses.

(1) A presenting bank which, following the dishonor of a documentary

draft, has seasonably requested instructions but does not receive them

within a reasonable time may store, sell, or otherwise deal with the

goods in any reasonable manner.

(2) For its reasonable expenses incurred by action under subsection

(1) the presenting bank has a lien upon the goods or their proceeds,

which may be foreclosed in the same manner as an unpaid seller's lien.

Section 4-A-101. Short Title.

This Article may be cited as uniform commercial code -- funds

transfers.

Section 4-A-102. Subject Matter.

Except as otherwise provided in Section 4-A-108, this Article applies

to funds transfers defined in Section 4-A-104.

Section 4-A-103. Payment Order-Definitions.

(1) In this article:

(a) "Payment order" means an instruction of a sender to a

receiving bank, transmitted orally or in a record, to pay, or

to cause another bank to pay, a fixed or determinable amount

of money to a beneficiary if:

(i) the instruction does not state a condition to payment to

the beneficiary other than time of payment,

(ii) the receiving bank is to be reimbursed by debiting an

account of, or otherwise receiving payment from, the

sender, and

(iii) the instruction is transmitted by the sender directly to

the receiving bank or to an agent, funds transfer system,

or communication system for transmittal to the receiving

bank.

(b) "Beneficiary" means the person to be paid by the

beneficiary's bank.

(c) "Beneficiary's bank" means the bank identified in a payment

order in which an account of the beneficiary is to be

credited pursuant to the order or which otherwise is to make

payment to the beneficiary if the order does not provide for

payment to an account.

(d) "Receiving bank" means the bank to which the sender's

instruction is addressed.

(e) "Sender" means the person giving the instruction to the

receiving bank.

(2) If an instruction complying with paragraph (a) of subsection (1)

is to make more than one payment to a beneficiary, the instruction is a

separate payment order with respect to each payment.

(3) A payment order is issued when it is sent to the receiving bank.

Section 4-A-104. Funds Transfer-Definitions.

In this article:

(1) "Funds transfer" means the series of transactions, beginning with

the originator's payment order, made for the purpose of making payment

to the beneficiary of the order. The term includes any payment order

issued by the originator's bank or an intermediary bank intended to

carry out the originator's payment order. A funds transfer is completed

by acceptance by the beneficiary's bank of a payment order for the

benefit of the beneficiary of the originator's payment order.

(2) "Intermediary bank" means a receiving bank other than the

originator's bank or the beneficiary's bank.

(3) "Originator" means the sender of the first payment order in a

funds transfer.

(4) "Originator's bank" means (a) the receiving bank to which the

payment order of the originator is issued if the originator is not a

bank, or (b) the originator if the originator is a bank.

Section 4-A-105. Other Definitions.

(1) In this Article:

(a) "Authorized account" means a deposit account of a customer

in a bank designated by the customer as a source of payment

of payment orders issued by the customer to the bank. If a

customer does not so designate an account, any account of the

customer is an authorized account if payment of a payment

order from that account is not inconsistent with a

restriction on the use of that account.

(b) "Bank" means a person engaged in the business of banking and

includes a savings bank, savings and loan association, credit

union, and trust company. A branch or separate office of a

bank is a separate bank for purposes of this article.

(c) "Customer" means a person, including a bank, having an

account with a bank or from whom a bank has agreed to receive

payment orders.

(d) "Funds-transfer business day" of a receiving bank means the

part of a day during which the receiving bank is open for the

receipt, processing, and transmittal of payment orders and

cancellations and amendments of payment orders.

(e) "Funds-transfer system" means a wire transfer network,

automated clearing house, or other communication system of a

clearing house or other association of banks through which a

payment order by a bank may be transmitted to the bank to

which the order is addressed.

(f) "Good faith" means honesty in fact and the observance of

reasonable commercial standards of fair dealing.

(g) "Prove" with respect to a fact means to meet the burden of

establishing the fact (subsection (b)(8) of section 1--201).

(2) Other definitions applying to this Article and the sections in

which they appear are:

"Acceptance" Section 4-A-209

"Beneficiary" Section 4-A-103

"Beneficiary's bank" Section 4-A-103

"Executed" Section 4-A-301

"Execution date" Section 4-A-301

"Funds transfer" Section 4-A-104

"Funds-transfer system rule" Section 4-A-501

"Intermediary bank" Section 4-A-104

"Originator" Section 4-A-104

"Originator's bank" Section 4-A-104

"Payment by beneficiary's

bank to beneficiary" Section 4-A-405

"Payment by originator

to beneficiary" Section 4-A-406

"Payment by sender to

receiving bank" Section 4-A-403

"Payment date" Section 4-A-401

"Payment order" Section 4-A-103

"Receiving bank" Section 4-A-103

"Security procedure" Section 4-A-201

"Sender" Section 4-A-103

(3) The following definitions in Article 4 apply to this Article:

"Clearing house" Section 4-104

"Item" Section 4-104

"Suspends payments" Section 4-104

(4) In addition Article 1 contains general definitions and principles

of construction and interpretation applicable throughout this Article.

Section 4-A-106. Time Payment Order is Received.

(1) The time of receipt of a payment order or communication cancelling

or amending a payment order is determined by the rules applicable to

receipt of a notice stated in Section 1--202. A receiving bank may fix a

cut-off time or times on a funds-transfer business day for the receipt

and processing of payment orders and communications cancelling or

amending payment orders. Different cut-off times may apply to payment

orders, cancellations, or amendments, or to different categories of

payment orders, cancellations, or amendments. A cut-off time may apply

to senders generally or different cut-off times may apply to different

senders or categories of payment orders. If a payment order or

communication cancelling or amending a payment order is received after

the close of a funds-transfer business day or after the appropriate

cut-off time on a funds-transfer business day, the receiving bank may

treat the payment order or communication as received at the opening of

the next funds-transfer business day.

(2) If this Article refers to an execution date or payment date or

states a day on which a receiving bank is required to take action, and

the date or day does not fall on a funds-transfer business day, the next

day that is a funds-transfer business day is treated as the date or day

stated, unless the contrary is stated in this Article.

Section 4-A-107. Federal Reserve Regulations and Operating Circulars.

Regulations of the Board of Governors of the Federal Reserve System

and operating circulars of the Federal Reserve Banks supersede any

inconsistent provision of this Article to the extent of the

inconsistency.

Section 4-A-108. Relationship to Electronic Fund Transfer Act.

(1) Except as provided in subsection (2) of this section, this Article

does not apply to a funds transfer any part of which is governed by the

Electronic Fund Transfer Act of 1978 (Title XX, Public Law 95-630, 92

Stat. 3728, 15 U.S.C. §1693 et seq.) as amended from time to time.

(2) This Article shall apply to a funds transfer that is a remittance

transfer as defined in the Electronic Fund Transfer Act (15 U.S.C. Sec.

1693o-1) as amended from time to time unless the remittance transfer is

an electronic fund transfer as defined in the Electronic Fund Transfer

Act (15 U.S.C. Sec. 1693a) as amended from time to time.

(3) In a funds transfer to which this Article applies, in the event of

an inconsistency between an applicable provision of this Article and an

applicable provision of the Electronic Fund Transfer Act, the provision

of the Electronic Fund Transfer Act governs to the extent of the

inconsistency.

Section 4-A-201. Security Procedure.

"Security procedure" means a procedure established by agreement of a

customer and a receiving bank for the purpose of (1) verifying that a

payment order or communication amending or cancelling a payment order is

that of the customer, or (2) detecting error in the transmission or the

content of the payment order or communication. A security procedure may

impose an obligation on the receiving bank or the customer and may

require the use of algorithms or other codes, identifying words,

numbers, symbols, sounds, biometrics, encryption, callback procedures,

or similar security devices. Comparison of a signature on a payment

order or communication with an authorized specimen signature of the

customer or requiring a payment order to be sent from a known email

address, IP address, or telephone number is not by itself a security

procedure.

Section 4-A-202. Authorized and Verified Payment Orders.

(1) A payment order received by the receiving bank is the authorized

order of the person identified as sender if that person authorized the

order or is otherwise bound by it under the law of agency.

(2) If a bank and its customer have agreed that the authenticity of

payment orders issued to the bank in the name of the customer as sender

will be verified pursuant to a security procedure, a payment order

received by the receiving bank is effective as the order of the

customer, whether or not authorized, if (a) the security procedure is a

commercially reasonable method of providing security against

unauthorized payment orders, and (b) the bank proves that it accepted

the payment order in good faith and in compliance with the bank's